SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) October 20, 2000
ANTEON CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Virginia 333-84835 54-1023915
---------------------------- ---------------- -------------------
(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
(703) 246-0200
---------------------------------------------------
(Registrants telephone number, including area code)
N/A
-------------------------------------------------------------
(Former name or former address, if changed since last report)
1
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(A Majority-Owned Subsidiary of Azimuth Technologies, Inc.)
Item 7. Financial Statements and Exhibits
(a) In accordance with Item 7 (a) (4) of Form 8-K, and because it was
impractical to provide the required financial statements for the acquired
business at the time the Company's current report on Form 8-K dated October 20,
2000 was filed, the Audited Consolidated Financial Statements for Sherikon, Inc.
as of December 31, 1999 and 1998 and for the years ended December 31, 1999, 1998
and 1997 and related Independent Auditors' Report thereon, and the Unaudited
Balance Sheet as of June 30, 2000 and Statements of Income for the six month
period ended June 30, 2000 and 1999 are being filed as part of this Form 8-K/A
beginning on page 4.
(b) In accordance with Item (7) (b) (2) of Form 8-K, and because it was
impractical to provide the required proforma financial information relative to
the acquired business at the time the Company's current report on Form 8K
dated October 20, 2000 was filed, the Unaudited Proforma Condensed Consolidated
Statements of Income, Unaudited Proforma Condensed Consolidated Balance Sheet,
and Notes to Unaudited Proforma Condensed Consolidated Financial Statements are
being filed as part of this Form 8-K/A beginning on page 19.
(c) Exhibits.
Exhibit No. Document
2 Stock Purchase Agreement dated as of October 20, 2000, by
and among Anteon Corporation, Sherikon Inc. and the
shareholders of Sherikon, Inc. (incorporated by reference
to the registrant's current report on Form 8K as filed
November 6, 2000 (Commission File No. 333-84835).
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this amendment to be signed on its behalf by the
undersigned hereunto duly authorized.
ANTEON CORPORATION
Date: November 13, 2000 By:
-------------------------------
Joseph M. Kampf
President and
Chief Executive Officer
Date: November 13, 2000 By:
-------------------------------
Carlton B. Crenshaw
Sr. Vice President of Finance
and Administration and
Chief Financial Officer
3
<PAGE>
Independent AuditorS' REPORT
To the Board of Directors
SHERIKON, Inc.
Chantilly, Virginia
We have audited the accompanying consolidated balance sheets of SHERIKON, Inc.
and Subsidiaries as of December 31, 1998 and 1999, and the related consolidated
statements of income, cash flows, and stockholders' equity for each of the years
in the three-year period ended December 31, 1997, 1998 and 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 referred to above present
fairly, in all material respects, the financial position of SHERIKON, Inc. and
Subsidiaries as of December 31, 1998 and 1999, 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.
Keller, Bruner & Company, LLP
February 24, 2000
Bethesda, Maryland
4
<PAGE>
SHERIKON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31, Six Months Ended June 30,
-------------------------------------------- ----------------------------
1997 1998 1999 1999 2000
----------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Contract revenue $ 72,353,170 $ 71,796,011 $ 62,719,045 $ 31,439,647 $ 33,149,458
----------------------------------------------------------------------------
Direct contract costs:
Direct labor 27,507,842 27,191,323 22,780,696 11,409,513 12,430,333
Direct subcontractors 9,568,779 8,990,349 6,925,619 3,518,919 4,102,174
Other direct costs 12,964,495 12,388,257 9,165,950 4,624,958 4,123,310
----------------------------------------------------------------------------
50,041,116 48,569,929 38,872,265 19,553,390 20,655,817
----------------------------------------------------------------------------
Gross profit 22,312,054 23,226,082 23,846,780 11,886,257 12,493,641
Indirect expenses 19,130,084 21,023,697 19,302,673 9,713,603 10,310,595
----------------------------------------------------------------------------
Operating income 3,181,970 2,202,385 4,544,107 2,172,654 2,183,046
----------------------------------------------------------------------------
Interest income 16,963 42,852 200,923 69,546 121,767
Interest expense (401,382) (388,781) (220,865) (123,621) (148,721)
----------------------------------------------------------------------------
(384,419) (345,929) (19,942) (54,075) (26,954)
----------------------------------------------------------------------------
Income before income taxes
and net insurance
proceeds 2,797,551 1,856,456 4,524,165 2,118,579 2,156,092
Provision for income taxes (1,088,000) (727,000) (1,730,000) (837,000) (828,000)
Net insurance proceeds -- -- 2,110,000 2,110,000 --
----------------------------------------------------------------------------
Income from continuing
operations 1,709,551 1,129,456 4,904,165 3,391,579 1,328,092
Loss from discontinued operations
Net of income tax benefit (325,729) (572,023) -- -- --
----------------------------------------------------------------------------
Net income $ 1,383,822 $ 557,433 $ 4,904,165 $ 3,391,579 $ 1,328,092
============================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
SHERIKON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------- June 30,
ASSETS 1998 1999 2000
-------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Current Assets
Cash $ 393,912 $ 4,238,484 $ 4,199,498
Accounts receivable - contracts 15,445,452 13,426,676 14,798,142
Prepaid expenses and other 350,074 351,652 219,734
Prepaid income taxes 309,140 1,870 24,653
Deferred tax benefits 35,065 819,933 819,933
---------------------------------------
Total current assets 16,533,643 18,838,615 20,061,960
---------------------------------------
Property and Equipment
Office equipment and furniture 1,051,771 1,098,515 1,096,118
Other property 246,286 316,252 348,555
Shop equipment 101,953 216,075 216,075
---------------------------------------
1,400,010 1,630,842 1,660,748
Less accumulated depreciation 980,525 1,193,239 1,270,588
---------------------------------------
419,485 437,603 390,160
---------------------------------------
Other Assets
Notes receivable - stockholder 235,000 235,000 235,000
Deposits and other 324,522 447,491 485,972
Cash surrender value of life insurance 232,769 56,761 56,761
Deferred tax benefits 162,800 61,200 61,200
---------------------------------------
955,091 800,452 838,933
---------------------------------------
$17,908,219 $20,076,670 $21,291,053
=======================================
</TABLE>
See Notes to Consolidated Financial Statements.
(Continued)
6
<PAGE>
<TABLE>
<CAPTION>
December 31,
LIABILITIES AND ------------------------- June 30,
STOCKHOLDERS' EQUITY 1998 1999 2000
-----------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Current Liabilities
Note payable - line of credit $ 5,682,928 $ 2,892,524 $ 3,445,180
Accounts payable 2,101,388 1,857,164 1,611,914
Accrued expenses 5,883,027 6,145,639 5,693,980
Income taxes payable -- 300,321 317,413
---------------------------------------
Total current liabilities 13,667,343 11,195,648 11,068,487
---------------------------------------
Deferred Compensation 448,530 184,511 197,963
---------------------------------------
Stockholders' Equity
Common stock; no par value;
1,000 shares authorized;
970 shares issued 4,093 4,093 4,093
Retained earnings 3,848,253 8,752,418 10,080,510
---------------------------------------
3,852,346 8,756,511 10,084,603
Less cost of 30 shares of
treasury stock 60,000 60,000 60,000
---------------------------------------
Total stockholders' equity 3,792,346 8,696,511 10,024,603
---------------------------------------
$17,908,219 $20,076,670 $21,291,053
=======================================
</TABLE>
7
<PAGE>
SHERIKON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31, Six Months Ended June 30,
------------------------------------------ --------------------------
1997 1998 1999 1999 2000
-------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activies
Net income $ 1,383,822 $ 557,433 $ 4,904,165 $ 3,391,579 $ 1,328,092
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Net proceeds from life insurance -- -- (2,110,000) (2,110,000) --
Depreciation and amortization 449,095 682,658 234,832 123,878 77,349
Provision for deferred income
taxes (177,430) 138,000 (683,268) -- --
(Gain) loss on disposal of
property and euipment 3,310 (8,019) 7,791 1,033 2,666
Loss on disposal of inventory -- 82,752 -- -- --
Changes in assets and liabilities
Accounts receivable (2,107,781) 96,151 2,018,776 3,849,631 (1,371,466)
Prepaid expenses and other 71,094 (159,755) (1,578) 107,765 131,918
Pepaid income taxes 86,957 (293,833) 307,270 118,394 (22,783)
Inventory 86,004 -- -- -- --
Deposits and other (29,448) (73,767) (122,969) (68,635) (38,481)
Accounts payable 67,751 (1,646,171) (223,873) (650,176) (245,250)
Accrued expenses 2,001,318 531,944 262,612 (447,886) (451,662)
Income taxes payable (298,477) (100,290) 300,321 -- 17,092
Deferred revenue (271,815) -- -- -- --
Deferred compensation 88,858 71,234 (264,019) (273,335) 13,452
-----------------------------------------------------------------------
Net cash provided by (used
in) operating activities 1,353,258 (121,663) 4,630,060 4,042,248 (559,073)
-----------------------------------------------------------------------
Cash Flows from Investing Activities
Disbursement of notes receivable-
stockholder (5,000) (70,000) -- -- --
Net proceeds from (increase in)
cash surrender value of life
insurance (39,315) (69,398) 2,286,008 2,286,008 --
Purchase of property and
equipment (272,579) (220,214) (260,741) (49,803) (32,572)
Proceeds from sale of property and
equipment -- 427,500 -- -- --
-----------------------------------------------------------------------
Net cash provided by (used
in) investing activities (316,894) 67,888 2,025,267 2,236,205 (32,572)
-----------------------------------------------------------------------
</TABLE>
(Continued)
8
<PAGE>
SHERIKON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
Years Ended December 31, Six Months Ended June 30,
------------------------------------------ --------------------------
1997 1998 1999 1999 2000
--------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Cash Flows from Financing Activities
Net borrowings (payments) on
line of credit (819,149) 145,332 (2,790,404) (2,813,080) 552,659
Principal payments under capital
leases (110,709) (555,089) (10,351) (7,147) --
Principal payments on notes
payables (52,549) (25,791) (10,000) -- --
-----------------------------------------------------------------------
Net cash provided by
(used in) financing
activities (982,407) (435,548) (2,810,755) (2,820,227) 552,659
-----------------------------------------------------------------------
Net increase (decrease)
in cash 53,957 (489,323) 3,844,572 3,458,226 (38,986)
Cash
Beginning 829,278 883,235 393,912 393,912 4,238,484
-----------------------------------------------------------------------
Ending $ 883,235 $ 393,912 $ 4,238,484 $ 3,852,138 $ 4,199,498
=======================================================================
Supplemental Disclosures of Cash
Flow Information:
Cash payments (refunds) for:
Interest $ 478,835 $ 412,574 $ 219,370 $ 123,621 $ 148,721
=======================================================================
Taxes paid $ 552,560 $ 482,917 $ 1,225,530 $ 437,000 $ 829,500
=======================================================================
Taxes received $ (142,768) $ (15,307) $ (134,364) $ (114,527) $ (18,592)
=======================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
9
<PAGE>
SHERIKON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Retained Treasury
Stock Earnings Stock Total
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1996 $ 4,903 $ 1,906,998 $ (60,000) $ 1,851,091
Net income -- 1,383,822 -- 1,383,822
------------------------------------------------------
Balance, December 31, 1997 4,093 3,290,820 (60,000) 3,234,913
Net income -- 557,433 -- 557,433
------------------------------------------------------
Balance, December 31, 1998 4,093 3,848,253 (60,000) 3,792,346
Net income -- 4,904,165 -- 4,904,165
------------------------------------------------------
Balance, December 31, 1999 4,093 8,752,418 (60,000) 8,696,511
Net income for the six months
ended June 30, 2000 (Unaudited) -- 1,328,092 -- 1,328,092
------------------------------------------------------
Balance at June 30, 2000
(Unaudited) $ 4,093 $10,080,510 $ (60,000) $10,024,603
======================================================
</TABLE>
See Notes to Consolidated Financial Statements.
10
<PAGE>
SHERIKON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 1. Nature of Business and Significant Accounting Policies
Nature of business: SHERIKON, Inc. (the Company), is a professional services
firm with the majority of its revenue derived from U.S. Government contracts.
A summary of the Company's significant accounting policies follows:
Principles of consolidation: The consolidated financial statements include the
financial statements of the Company and its wholly-owned subsidiaries, SHERIKON
Space Systems, Inc., which was incorporated on September 30, 1993, and South
Texas Ship Repair, Inc., which was incorporated on May 29, 1996. All significant
intercompany accounts and transactions are eliminated in consolidation. As
discussed more thoroughly in Note 9, the Company's Precision Metals division is
presented as discontinued operations.
Revenue and cost recognition: Revenue on cost-plus-fee contracts is recognized
to the extent of reimbursable contract costs incurred, plus the fee earned.
Services performed which have been authorized, but which may not be currently
billable, are burdened with operational overhead and general and administrative
expenses, and shown as unbilled costs. Revenue on firm-fixed-price contracts is
recognized on the percentage of completion method based on the relationship that
contract costs incurred to date bear to management's estimate of total contract
costs. Revenue on time and material contracts is recognized at contractual rates
as labor hours and material costs are incurred. Revenue derived from contracts
awarded to the Company while under the 8(a) program is approximately $14.2
million, $8.0 million and $3.3 million in 1997, 1998 and 1999, respectively. The
Company graduated from the 8(a) program in 1994. Revenue under the 8(a) program
contracts for the six months ended June 30, 1999 and 2000 was approximately $4.9
and $1.9 million (unaudited), respectively.
Provisions for estimated losses on uncompleted contracts are made in the period
in which such losses are determined. The Company's United States Government
contracts (approximately 96%, 98% and 97% of total revenue for 1997, 1998 and
1999, respectively) are subject to government audit of direct and indirect
costs. All such incurred cost audits have been completed through December 31,
1996. Management does not anticipate any material adjustments to the financial
statements in subsequent periods as a result of final settlement of these
contracts.
Accounts receivable: In accordance with industry practice, accounts receivable
relating to long-term contracts are classified as current assets, although an
indeterminable portion of the amounts is not expected to be realized within one
year.
Income taxes: Provision for deferred income taxes are provided on a liability
method, whereby, deferred tax assets are recognized for deductible temporary
differences and tax credit carryforwards, and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment.
11
<PAGE>
SHERIKON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 1. Nature of Business and Significant Accounting Policies (Continued)
Property and equipment: Property and equipment are recorded at cost.
Depreciation is provided using both straight-line and accelerated methods at
rates calculated to amortize the cost of the applicable assets over estimated
useful lives of three to seven years.
Software-related product costs: The Company capitalized certain development
costs of software-related products after technological feasibility and
marketability had been demonstrated. In August 1997, these products were
completed. The capitalized costs were being amortized over their estimated
economic useful lives. Based upon the Company's evaluation of the recoverability
of these costs, the net book value of the capitalized costs in the amount of
$359,416, was written off in 1998.
Financial credit risk: The Company maintains its cash in bank deposit accounts
which, at times, may exceed Federally insured limits. The Company has not
experienced any losses in such accounts. The Company believes it is not exposed
to any significant credit risk on cash.
Estimates: The preparation of 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 financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications: Certain reclassifications have been made to prior years'
financial statements, in order for them to conform to the current presentation.
Interim financial information: The accompanying unaudited financial information
for the six months ended June 30, 1999 and 2000, have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. All references to amounts
at June 30, 2000, and the six month periods ended June 30, 1999 and 2000, are
unaudited.
12
<PAGE>
SHERIKON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 2. Accounts Receivable - Contracts
Accounts receivable as of December 31, 1998 and 1999 and June 30, 2000, consist
of the following:
<TABLE>
<CAPTION>
June 30,
1998 1999 2000
--------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Amounts billed $11,340,394 $10,202,145 $12,007,550
Unbilled receivables 4,249,640 3,224,531 2,790,592
---------------------------------------
15,590,034 13,426,676 14,798,142
Less provision for doubtful accounts 144,582 -- --
---------------------------------------
$15,445,452 $13,426,676 $14,798,142
=======================================
</TABLE>
Unbilled accounts receivable as of 1998 and 1999 consist primarily of work
performed in December and billed in January.
Note 3. Notes Receivable - Stockholder
The primary stockholder borrowed $235,000 from the Company. The borrowings are
evidenced by notes, which are unsecured, due upon demand, and accrue interest at
5.5% per annum.
Note 4. Note Payable - Line of Credit
The Company's current loan agreement was entered into in October 1996 and
amended October 1999. The loan agreement covers the consolidated Companies of
SHERIKON, Inc. Under this agreement, the line of credit is secured by
substantially all assets of the Company, is payable upon demand, and carries
interest at Libor, plus 1.75%. The interest rate at December 31, 1999, was
8.229%. The maximum amount available on this line of credit is 90% of eligible
billed government receivables, and 80% of eligible billed commercial receivables
of SHERIKON, Inc. and SHERIKON Space Systems, Inc. If approved by the lender and
in its sole discretion, 80% of the eligible billed commercial receivables of
South Texas Ship Repair, Inc. may be included in the borrowing base. The
borrowing base is also reduced by the face amounts of any letters of credit for
the borrowers. The total of all loans outstanding at any time may not exceed
$8,500,000. The loan expires in December 2000.
The balance outstanding on the line of credit at December 31, 1998 and 1999, was
$5,682,928 and $2,892,524, respectively.
13
<PAGE>
SHERIKON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 5. Income Taxes
The provision (benefit) for income taxes charged to operations for the years
ended December 31, 1997, 1998 and 1999, consist of the following:
1997 1998 1999
-----------------------------------------------------------------------------
Current:
Federal tax expense $ 1,060,000 $ 490,800 $ 1,694,338
State tax expense 205,430 98,200 341,662
-----------------------------------------
1,265,430 589,000 2,036,000
-----------------------------------------
Deferred:
Federal tax expense (benefit) (148,680) 115,000 (254,650)
State tax expense (benefit) (28,750) 23,000 (51,350)
-----------------------------------------
(177,430) 138,000 (306,000)
-----------------------------------------
$ 1,088,000 $ 727,000 $ 1,730,000
=========================================
Net deferred tax amounts as of December 31, 1998 and 1999, consist of the
following:
1998 1999
-------------------------------------------------------------------------------
Deferred tax liabilities:
Property and equipment $ (7,952) $ (9,380)
Prepaid expenses (15,927) (33,454)
Contractually unbillable (535,582) (286,174)
-----------------------------
(559,461) (329,008)
-----------------------------
Deferred tax assets:
Accrued vacation and salaries 197,979 226,602
Deferred compensation 170,735 70,566
Accrued expenses 367,676 912,973
Receivable reserves 20,936 --
-----------------------------
757,326 1,210,141
-----------------------------
$ 197,865 $ 881,133
=============================
14
<PAGE>
SHERIKON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 5. Income Taxes (Continued)
The deferred tax amounts mentioned above have been classified on the
accompanying consolidated balance sheets as of December 31, 1998 and 1999, as
follows:
1998 1999
--------------------------------------------------------------------------------
Current assets $ 35,065 $819,933
Non-current assets 162,800 61,200
---------------------------
$197,865 $881,133
===========================
A reconciliation of the income tax provision and the amount computed by applying
the statutory U.S. and state income tax rates for the years ended December 31,
1997, 1998 and 1999, is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Amount at statutory U.S. rate $ 772,000 $ 318,000 $1,538,000
State taxes net of U.S. tax benefit 92,000 40,000 180,000
Expenses not deductible for tax purposes and
miscellaneous reconciling items 24,000 20,000 12,000
--------------------------------------
$ 888,000 $ 378,000 $1,730,000
======================================
Effective tax rate 39.10% 40.40% 38.20%
</TABLE>
The income tax expense recorded for the six months ended June 30, 1999 and June
30, 2000 (unaudited), was based on the Parent's effective tax rate for 1998 and
1999.
Note 6. Depreciation and Amortization
Depreciation and amortization charged to expense for the years ended December
31, 1997, 1998 and 1999, is as follows:
<TABLE>
<CAPTION>
Estimated
Asset Category Useful Lives 1997 1998 1999
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Office equipmemt and furniture 3 - 5 years $ 171,386 $ 182,640 $ 152,087
Office Property 2 - 7 years 40,199 43,518 51,063
Shop equipment 3 - 5 years 137,510 97,084 31,682
------------------------------------------
349,095 323,242 234,832
Software related products 5 years 100,000 359,416 -
------------------------------------------
$ 449,095 $ 682,658 $ 234,832
==========================================
</TABLE>
15
<PAGE>
SHERIKON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 7. Profit Sharing Plan
The Company maintains a defined contribution profit sharing plan under the
provisions of Section 401(k) of the Internal Revenue Code. All employees
completing 500 hours and three consecutive months of service, and who are age 21
or older are eligible to participate. The plan provides for a discretionary
contribution by the Company determined by the Board of Directors based primarily
on earnings. Employees are vested in the discretionary contributions in
accordance with a graded vesting schedule, and are fully vested after five years
of participation. Discretionary contributions were $455,872, $351,170 and
$334,438 for the years ended December 31, 1997, 1998 and 1999, respectively.
Note 8. Leasing Arrangements
The Company leases all of its office space and rents equipment under lease
agreements which expire through 2011. Some of these leases are subject to
increases due to adjustments in the Consumer Price Index, operating costs and
real estate taxes. The minimum annual lease payments under noncancelable
agreements accounted for as operating leases, are as follows:
Years ending December 31,
--------------------------------------------------------------------------------
2000 $2,261,910
2001 1,688,940
2002 1,209,833
2003 1,037,764
2004 840,384
Thereafter 2,325,202
----------
$9,364,033
==========
Total rent expense of $3,184,670, $3,076,230 and $2,180,891 was charged to
operations for the years ended December 31, 1997, 1998 and 1999, respectively.
Note 9. Discontinued Operations
On March 1, 1995, the Company purchased the inventory of Modern Metal
Manufacturing, Inc. The purchase resulted in $420,349 of intangible asset. In
1996, the unamortized balance of the intangible asset, in the amount of $396,996
was charged to amortization expense. This operation was renamed SHERIKON
Precision Metals.
16
<PAGE>
SHERIKON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 9. Discontinued Operations (Continued)
In September 1998, the Company decided to discontinue operations of the
Precision Metals division. Accordingly, the operating results of the division
have been segregated from continuing operations and reported as a separate line
item on the Consolidated Statements of Income. The Company has restated its
prior financial statements to present the operating results of Precision Metals
as discontinued operations. The Company either sold or disposed of all property
and equipment of the line of business during September and October of 1998. The
estimated loss from operations and on disposal of the discontinued operations,
are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating loss, net of income tax benefit of $200,000
and $292,000 for 1997 and1998 $(325,729) $(478,862) $ --
Loss on disposal, net of income tax benefit of $0 and
$57,000 in 1997 and 1998 -- (93,161) --
--------------------------------
Loss from discontinued operations $(325,729) $(572,023) $ --
================================
</TABLE>
Note 10. Deferred Compensation
The Company currently has a deferred compensation agreement with one key
employee. The agreement requires the Company to pay the employee $113,379 per
year for 15 years upon attainment of age sixty-five. Upon Company approval,
benefits at a reduced percentage will be provided in the event of early
retirement, or if the employee becomes disabled. If employment is terminated for
any reason, the employee is entitled to benefits based upon a vesting schedule.
The agreement further stipulates that the entire benefit will be provided to the
designated beneficiaries upon the death of the employee. The present value of
the estimated liability under the agreement is being accrued over the expected
remaining years of employment. The Company is the owner and beneficiary of one
life insurance policy, with a face amount totaling $411,000 on the life of the
above-mentioned employee, which will fund the potential benefits owed by the
Company.
As more fully described in Note 11, a deferred compensation agreement became
payable in 1999 as the result of the death of Edward R. Fernandez.
The deferred compensation expense for the years ended December 31, 1997, 1998
and 1999, was $88,858, $71,234 and $26,907, respectively, which are the payments
that would be required to fund the present value of the benefits discounted at
7.5%. The plan does not qualify under the Internal Revenue Code and therefore,
tax deductions are allowable only when the benefits are paid.
17
<PAGE>
SHERIKON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Note 10. Deferred Compensation (Continued)
The Company also provided one of its executives with a split dollar life
insurance policy whereby the Company paid the premiums on the executive's
behalf. The cumulative premiums paid were $120,000, $212,430 and $277,450, at
December 31, 1997, 1998 and 1999, respectively. The amount of cumulative
premiums will be reimbursed to the Company from proceeds from the insurance
policy or its cash surrender value.
Note 11. Net Insurance Proceeds
On January 31, 1999, Edward R. Fernandez, SHERIKON, Inc.'s founder, President,
and Chief Executive Officer, died in the crash of his private airplane.
SHERIKON, Inc. maintained various life insurance policies on Mr. Fernandez and
had a deferred compensation agreement which became payable in April 1999, as a
lump sum payment to Mr. Fernandez's wife. The after tax proceeds from the
insurance policies, less the present value of the deferred compensation
obligation, net of its tax benefit, was approximately $2,110,000.
Note 12. Litigation
The Company is involved in various legal actions arising in the normal course of
business. After taking into consideration legal counsel's evaluation of such
actions, management is of the opinion that any potential liability, arising from
these claims against the Company, not covered by insurance, would be minimal.
18
<PAGE>
UNAUDITED PROFORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
The unaudited proforma condensed consolidated financial information has
been prepared by Anteon's management and gives effect to the acquisition of
Analysis & Technology, Inc. (A&T) completed on June 23, 1999, the acquisition of
Sherikon, Inc. (Sherikon) completed on October 20, 2000, the offering of the
initial senior subordinated notes completed on May 11, 1999, the initial
borrowing under the new credit facility on June 23, 1999, the repayment of
amounts outstanding under the old credit facility on June 23, 1999 and the
repayment of all of the outstanding indebtedness of A&T and Sherikon on June 23,
1999, and October 20, 2000, respectively.
The unaudited proforma condensed consolidated statement of operations for
the year ended December 31, 1999, has been prepared to give effect to the A&T
and Sherikon acquisitions as if they had occurred on January 1, 1999. The
unaudited proforma condensed consolidated statement of operations for the
six-month period ended June 30, 2000, has been prepared to give effect to the
Sherikon acquisition as if it had occurred as of January 1, 1999. The unaudited
proforma condensed consolidated balance sheet as of June 30, 2000, has been
prepared to give effect to the Sherikon acquisition as if it had occurred as of
June 30, 2000.
The proforma adjustments, which are based on available information and
certain assumptions that Anteon believes are reasonable under the circumstances,
are applied to the historical financial statements of Anteon, A&T and Sherikon.
The acquisitions are accounted for under the purchase method of accounting.
Anteon's allocation of the A&T purchase price is based upon independent
appraisals and other studies completed subsequent to the A&T acquisition.
Anteon's allocation of the Sherikon purchase price is based upon the preliminary
estimated fair value of assets acquired and liabilities assumed. The purchase
price allocations for the Sherikon acquisition reflected in the accompanying
unaudited proforma condensed consolidated financial statements may be different
from the final allocation of the purchase price, which will occur upon
completion of an independent appraisal and other studies, and any such
differences may be material.
The accompanying unaudited proforma condensed consolidated financial
information should be read in conjunction with the historical financial
statements and the notes thereto for Anteon, A&T and Sherikon. The unaudited
proforma condensed consolidated financial information is provided for
informational purposes only and do not purport to represent what Anteon's
financial position or results of operations would actually have been had the
acquisitions occurred on such dates or to project Anteon's results of operations
or financial position for any future period.
19
<PAGE>
Anteon Corporation
Unaudited Proforma Condensed Consolidated Statement of Operations
(in thousands)
<TABLE>
<CAPTION>
Year ended December 31, 1999
------------------------------------------------------------
Historical Historical Proforma Acquisition Proforma
Anteon(a) A&T(b) Adjustments Anteon
------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 400,850 $ 90,097 -- $ 490,947
Costs of revenues 353,245 76,444 -- 429,689
------------------------------------------------------------
Gross profit 47,605 13,653 -- 61,258
Operating Expenses:
General and administrative expenses 25,610 7,312 (292)(d) 32,630
Amortization of noncompete agreements 909 -- -- 909
Goodwill amortization 3,440 579 515(f) 4,534
Intangible Amortization -- -- 1,717(h) 1,717
Costs of acquisitions/acquisition related severance costs 2,316 638 -- 2,954
------------------------------------------------------------
Total operating expenses 32,275 8,529 1,940 42,744
------------------------------------------------------------
Operating income 15,330 5,124 (1,940) 18,514
Other income (2,585) -- -- (2,585)
Interest expense, net of interest income 16,042 93 5,860(j) 21,995
Minority interest in earnings of subsidiary 40 -- -- 40
------------------------------------------------------------
Income (loss) before provision for income taxes 1,833 5,031 (7,800) (936)
Provision for income taxes 1,543 2,240 (2,839)(l) 944
------------------------------------------------------------
Net income (loss) $ 290 $ 2,791 $ (4,961) $ (1,880)
============================================================
<CAPTION>
Year ended December 31, 1999
---------------------------------------------------------
Historical Proforma Acquisition Proforma
Sherikon(c) Adjustments Consolidated
---------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 62,719 -- $ 553,666
Costs of revenues 38,872 -- 468,561
---------------------------------------------------------
Gross profit 23,847 -- 85,105
Operating Expenses:
General and administrative expenses 19,303 (1,939)(e) 49,994
Amortization of noncompete agreements -- -- 909
Goodwill amortization -- 1,077(g) 5,611
Intangible Amortization -- 257(i) 1,974
Costs of acquisitions/acquisition related severance costs -- -- 2,954
---------------------------------------------------------
Total operating expenses 19,303 (605) 61,442
---------------------------------------------------------
Operating income 4,544 605 23,663
Other income -- -- (2,585)
Interest expense, net of interest income 20 2,802(k) 24,817
Minority interest in earnings of subsidiary -- -- 40
---------------------------------------------------------
Income (loss) before provision for income taxes 4,524 (2,197) 1,391
Provision for income taxes 1,730 (368)(l) 2,306
---------------------------------------------------------
Net income (loss) $ 2,794 $ (1,829) $ (915)
=========================================================
</TABLE>
See accompanying notes to unaudited proforma consolidated financial information.
20
<PAGE>
Anteon Corporation
Unaudited Proforma Condensed Consolidated Statement of Operations
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30, 2000
-------------------------------------------------------------
Proforma
Historical Historical Acquisition Proforma
Anteon Sherikon (c) Adjustments Consolidated
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 255,984 $ 33,150 -- $ 289,134
Costs of revenues 222,608 20,656 -- 243,264
-------------------------------------------------------------
Gross profit 33,376 12,494 -- 45,870
Operating Expenses:
General and administrative expenses 18,690 10,311 (970)(e) 28,031
Amortization of noncompete agreements 448 -- -- 448
Goodwill amortization 2,204 -- 539(g) 2,743
Intangible amortization 1,717 -- 129(i) 1,846
Costs of acquisitions 19 -- -- 19
-------------------------------------------------------------
Total operating expenses 23,078 10,311 (302) 33,087
-------------------------------------------------------------
Operating income 10,298 2,183 302 12,783
Other income -- -- -- --
Interest expense, net of interest income 10,744 27 1,401(k) 12,172
Minority interest in earnings of subsidiary 2 -- -- 2
-------------------------------------------------------------
Income (loss) before provision for income taxes (448) 2,156 (1,099) 609
Provision (benefit) for income taxes (261) 828 600(l) 1,167
-------------------------------------------------------------
Net income (loss) $ (187) $ 1,328 $ (1,699) $ (558)
=============================================================
</TABLE>
See accompanying notes to unaudited proforma consolidated financial information.
21
<PAGE>
The following adjustments have been reflected in the Unaudited Proforma
Condensed Consolidated Statements of Operations:
(a) The historical results of operations of Anteon for the year ended December
31, 1999 exclude an extraordinary loss of $463,000 (net of taxes of
$309,000) associated with the write-off of deferred financing costs
related to the old credit facility.
(b) To reflect historical results of A&T.
(c) To reflect historical results of operations of Sherikon, Inc. The
historical results of operations of Sherikon for the year ended December
31, 1999 exclude $2,110,000 of net insurance proceeds received upon the
death of its founder, President and Chief Executive Officer.
(d) To reflect cost savings associated with the elimination of general and
administrative expenses of A&T operating as a public company, including
fees payable to the board of directors of A&T.
(e) To reflect reductions in Sherikon's historical executive compensation
costs, duplicate facilities costs and other costs that will be eliminated
subsequent to the acquisition, as follows:
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, 1999 June 30, 2000
---------- ----------
<S> <C> <C>
Executive compensation $1,277,000 $ 639,000
Duplicate facilities 637,000 319,000
Other 25,000 12,000
---------- ----------
$1,939,000 $ 970,000
========== ==========
</TABLE>
(f) To reflect the amortization of goodwill of $72,965,000 from the
acquisition of A&T, determined as follows:
<TABLE>
<CAPTION>
Year Ended
December 31, 1999
-----------------
<S> <C>
Incremental goodwill amortization expense from the
A&T acquisition for the period January 1, 1999 to
June 23, 1999 $ 1,094,000
Elimination of historical A&T goodwill (579,000)
-----------
Pro forma adjustment to A&T goodwill
amortization expense $ 515,000
===========
</TABLE>
The acquisition of A&T was accounted for using the purchase method whereby the
net tangible and identifiable intangible assets acquired and liabilities assumed
were recognized at their
22
<PAGE>
estimated fair values at the date of combination. Amortization expense on the
goodwill from the acquisition is being amortized on a straight-line basis over
30 years.
(g) To record amortization of goodwill of $21,344,000 associated with the
purchase of Sherikon. Goodwill will be amortized on a straight line basis
over approximately 20 years.
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, 1999 June 30, 2000
----------------- -------------
<S> <C> <C>
Amortization expense from the
acquisition $1,077,000 $ 539,000
</TABLE>
The acquisition of Sherikon will be accounted for using the purchase method
whereby the net tangible and identifiable intangible assets acquired and
liabilities assumed will be recognized at their estimated fair values at the
date of combination. The allocation of the Sherikon purchase price is based upon
the preliminary estimated fair value of assets acquired and liabilities assumed.
The purchase price allocations reflected in the accompanying unaudited proforma
condensed consolidated financial statements may be different from the final
allocation of the purchase price, which will occur upon completion of an
independent appraisal and other studies, and any such differences may be
material.
(h) To record amortization expense related to the identifiable intangible
assets associated with the acquisition of A&T. The Company obtained an
independent appraisal in June 2000 for the allocation of the purchase
price related to the acquisition of A&T. Based upon the results of the
valuation the company recorded the following intangible assets:
<TABLE>
<CAPTION>
Year Ended
December 31, 1999
-----------------
<S> <C> <C> <C>
Workforce $2,500,000 7 years $ 357,000
Contract Backlog $6,800,000 5 years 1,360,000
----------
$1,717,000
==========
</TABLE>
(i) To record amortization expense related to the preliminary estimate of the
fair value of identifiable intangible assets associated with the
acquisition of Sherikon, as follows:
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, 1999 June 30, 2000
----------------- -------------
<S> <C> <C> <C> <C>
Workforce $1,100,000 7 years $ 157,000 $ 79,000
Contract Backlog $ 500,000 5 years 100,000 50,000
---------- ----------
$ 257,000 $ 129,000
========== ==========
</TABLE>
(j) To reflect incremental interest expense associated with the purchase of
A&T (1) the 12% Senior Subordinated Notes Due 2009, (2) initial borrowings
under the new credit facility and (3) the amortization of deferred
financing costs. Also reflects the elimination of interest expense
associated with the old credit facility.
23
<PAGE>
The interest rates used above are the interest rates that we estimate will
be applicable. The Revolving Credit Facility will bear interest at
adjustable rates. An increase of 1/8% in the interest rate applicable to
the Revolving Credit Facility will result in proforma interest expense of
$24,872 and proforma net loss of $(948) for the year ended December 31,
1999.
(k) To record interest expense at a rate of 11.75% (the company's average
incremental borrowing rate) related to the additional average borrowings
of $22.1 million from the Sherikon acquisition and to record a reduction
in interest income at a rate of 5.0% to reflect the use of the available
cash balance of $4.1 million.
(l) To recognize Federal and state income taxes at a combined rate of 40.0%,
after adjusting income (loss) before taxes for non-deductibility of
goodwill amortization expense.
24
<PAGE>
Anteon Corporation
Unaudited Proforma Condensed Consolidated Balance Sheet
(in thousands)
<TABLE>
<CAPTION>
As of June 30, 2000
-----------------------------------------------------------
Proforma
Historical Historical Acquisition Proforma
Anteon Sherikon (a) Adjustments (b) Consolidated
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 1,309 $ 4,199 ($ 4,115) $ 1,393
Accounts receivable, net 120,304 14,798 -- 135,102
Prepaid expenses and other current assets 6,549 748 -- 7,297
-----------------------------------------------------------
Total current assets 128,162 19,745 (4,115) 143,792
Due from parent
Property and equipment, at cost, net of accumulated
depreciation and amortization 20,056 390 -- 20,446
Goodwill, net of accumulated amortization 122,786 -- 22,884 145,170
Other Intangible Assets, net 7,583 -- 1,600 9,183
Other assets, net 9,091 778 -- 9,869
-----------------------------------------------------------
Total assets $ 287,678 $ 20,913 $ 18,869 $ 328,460
===========================================================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts Payable $ 19,680 $ 1,612 -- $ 21,292
Accrued Expenses 37,827 5,694 1,244 44,765
Other current liabilities, net 369 3,445 (1,045) 2,769
Business purchase consideration payable -- -- 4,474 4,474
Term loan facility, current portion 2,813 -- -- 2,813
-----------------------------------------------------------
Total current liabilities 60,689 10,751 4,673 76,113
Revolving credit Facility 21,600 -- 22,112 43,712
Term loan Facility 57,187 -- -- 57,187
Senior subordinated notes payable 100,000 -- -- 100,000
Business purchase consideration payable -- -- 2,002 2,002
Noncurrent deferred tax liabilities, net 8,349 (61) 640 8,928
Other long term liabilities 1,482 198 467 2,147
-----------------------------------------------------------
Total liabilities 249,307 10,888 29,894 290,089
Minority interest in subsidiaries 627 -- -- 627
Stockholders' equity:
Common stock 178 4 (4) 178
Additional paid-in capital 33,038 -- -- 33,038
Treasury stock (5) (60) 60 (5)
Accumulated other comprehensive income (22) -- -- (22)
Retained earnings 4,555 10,081 (10,081) 4,555
-----------------------------------------------------------
Total stockholders' equity 37,744 10,025 (10,025) 37,744
-----------------------------------------------------------
Total liabilities and stockholders' equity $ 287,678 $ 20,913 $ 19,869 $ 328,460
===========================================================
</TABLE>
See accompanying notes to unaudited proforma consolidated financial information.
25
<PAGE>
Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet
The following adjustments have been reflected in the Unaudited Pro Forma
Condensed Consolidated Balance Sheet:
(a) To reflect the historical financial position of Sherikon. Certain
reclassifications of Sherikon's historical balance sheet accounts
have been made to conform to the presentation of Anteon.
(b) The Sherikon acquisition will be accounted for as a purchase
pursuant to APB Opinion No. 16. Accordingly, the identifiable
tangible and intangible assets acquired and liabilities assumed will
be presented at their estimated fair values as of the date of
combination. The pro forma adjustments herein are based on
management's preliminary estimates of fair value. The final
allocation of the purchase price will be based on an independent
appraisal and other studies which, when completed, may differ
materially from the preliminary purchase price allocation herein.
The purchase price paid for Sherikon is as follows:
<TABLE>
<S> <C>
Cash consideration paid at closing $20,800,000
Bonuses paid to Sherikon management at closing 5,005,000
Business purchase consideration payable, discounted
to present value at 11.75% 6,476,000
Guaranteed future bonuses to management, discounted
to present value at 11.75% 1,512,000
Estimated costs and expenses 386,000
-----------
Total consideration $34,179,000
===========
</TABLE>
The cash consideration portion of the acquisition was financed with
approximately $22.1 million of draws from Anteon's revolving credit facility and
approximately $4.1 million of available cash. At closing, approximately $590,000
of Sherikon debt was repaid.
The preliminary allocation of the purchase price is as follows:
<TABLE>
<S> <C>
Historical net assets of Sherikon $11,035,000
Accrual for termination and duplicate facilities (200,000)
Deferred taxes on purchase accounting adjustments (640,000)
Goodwill 22,384,000
Workforce 1,100,000
Contract backlog 500,000
-----------
Total consideration $34,179,000
===========
</TABLE>
The adjustment for the elimination of Sherikon's historical stockholders' equity
in the accompanying pro forma condensed consolidated balance sheet differs from
the amount described above by approximately $1,010,000 due to the timing of the
acquisition.
26
