<PAGE>
Form 10-Q for ANTEON CORPORATION filed on August 21, 2000
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
--------------------------------------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 333-84835
ANTEON CORPORATION
---------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Virginia 54-1023915
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3211 Jermantown Road, Fairfax, Virginia 22030-2801
--------------------------------------------------------------------------------
(Address of principal executive office)
(Zip Code)
(703) 246-0200
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
----------------------------------------------------------
(Former name, former address, and former fiscal year, if
changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
As of the close of business on August 16, 2000, there were 3,563,152 outstanding
shares of the registrant's common stock, par value $0.05 per share.
<PAGE>
CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF
JUNE 30, 2000 AND DECEMBER 31, 1999 1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND
JUNE 30, 1999 2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999 3
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 13
PART II. OTHER INFORMATION REQUIRED IN REPORT
ITEM 1. LEGAL PROCEEDINGS 18
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 18
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 18
ITEM 5. OTHER INFORMATION 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 18
i
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ANTEON CORPORATION AND SUBSIDIARIES
(A majority-owned subsidiary of Azimuth Technologies, Inc.)
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
--------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,309 $ 1,061
Accounts receivable, net 120,304 107,446
Prepaid expenses and other current assets 6,549 9,093
--------- ---------
Total current assets $ 128,162 $ 117,600
Property and equipment, net 20,056 19,953
Goodwill, net 122,786 130,563
Other intangibles, net 7,583 --
Other assets, net 9,091 9,535
--------- ---------
Total assets $ 287,678 $ 277,651
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 19,680 $ 18,211
Accrued expenses 37,827 35,625
Subordinated notes payable, current portion -- 8,840
Business purchase consideration payable -- 5,500
Other current liabilities, net 369 1,205
--------- ---------
Total current liabilities $ 57,876 $ 69,381
Revolving credit facility 21,600 2,900
Term loan facility 60,000 60,000
Senior subordinated notes payable 100,000 100,000
Deferred tax liabilities, net 8,349 4,921
Other long term liabilities 1,482 1,681
--------- ---------
Total liabilities $ 249,307 $ 238,883
Minority interest in subsidiaries 627 625
Shareholders' equity:
Common stock 178 178
Additional paid-in capital 33,038 33,234
Treasury stock (5) (5)
Accumulated other comprehensive income
(loss) (22) (5)
Retained earnings 4,555 4,741
--------- ---------
Total shareholders' equity $ 37,744 $ 38,143
--------- ---------
Total liabilities and shareholders' equity 287,678 277,651
========= =========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
1
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(A majority-owned subsidiary of Azimuth Technologies, Inc.)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------- --------------------------
2000 1999 2000 1999
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues $ 130,284 $ 73,052 $ 255,984 $ 145,609
Costs of revenues 113,129 64,333 222,608 128,576
--------- --------- --------- ---------
Gross profit 17,155 8,719 33,376 17,033
Operating expenses:
General and administrative expenses 9,595 4,709 18,690 8,907
Amortization of noncompete agreements 221 227 448 454
Goodwill amortization 995 512 2,204 1,024
Intangible amortization 1,717 -- 1,717 --
Cost of acquisitions 2 -- 19 --
--------- --------- --------- ---------
Total operating expenses 12,530 5,448 23,078 10,385
--------- --------- --------- ---------
Operating income 4,625 3,271 10,298 6,648
Interest expense, net of interest income of
$98, $635, $169, $682, respectively 5,341 3,231 10,744 5,500
Minority interest in earnings of subsidiaries 5 8 2 17
--------- --------- --------- ---------
Income before provision for income taxes (721) 32 (448) 1,131
Provision for income taxes (403) 53 (261) 597
--------- --------- --------- ---------
Income (loss) before extraordinary item (318) (21) (187) 534
Extraordinary item-loss on early extinguishment
of debt, net of income taxes of $309 in 1999 -- 463 -- 463
--------- --------- --------- ---------
Net income (loss) $ (318) $ (484) $ (187) $ 71
========= ========= ========= =========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
2
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(A majority-owned subsidiary of Azimuth Technologies, Inc.)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
For the six months ended
----------------------------
June 30, 2000 June 30, 1999
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (187) $ 71
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Extraordinary loss -- 772
Loss on sale of assets 117 --
Depreciation and amortization 2,865 996
Amortization of noncompete 448 454
Amortization of goodwill 2,204 1,024
Amortization of other intangible assets 1,717 --
Amortization of deferred financing fees 590 102
Deferred income taxes (44) 38
Minority interest in earnings of subsidiaries 2 17
Changes in assets and liabilities, net of acquired assets
and liabilities (7,662) 6,128
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 50 9,602
--------- ---------
INVESTING ACTIVITIES:
Purchases of property, buildings, and equipment (3,007) (1,255)
Payment of Techmatics earn-out (5,500) --
Acquisition of A&T, net of cash acquired (56) (115,446)
Purchases of long-term investments -- (1,939)
Other, net 40 (30)
--------- ---------
NET CASH USED FOR INVESTING ACTIVITIES (8,523) (118,670)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from bank notes payable -- 212,000
Principal payments on bank notes payable -- (209,400)
Proceeds from senior sub notes payable -- 100,000
Principal payments on notes payable (173) --
Principal payments on subordinated notes payable and other
consideration (9,850) (4,925)
Proceeds from revolving facility 234,300 --
Principal payments on revolving facility (215,600) --
Deferred financing costs -- (8,535)
Proceeds from issuance of common stock 44 22,536
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 8,721 111,676
--------- ---------
CASH AND CASH EQUIVALENTS:
Net increase in cash and cash equivalents 248 2,608
Balance at beginning of period 1,061 156
--------- ---------
Balance at end of period $ 1,309 $ 2,764
========= =========
Supplemental disclosure of cash flow information:
Interest paid $ 9,349 $ 4,856
Income taxes paid, net of refunds (1,703) 25
========= =========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
3
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(A majority-owned subsidiary of Azimuth Technologies, Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
(1) BASIS OF PRESENTATION
The information furnished in the accompanying unaudited Condensed
Consolidated Balance Sheet, Condensed Consolidated Statements of Operations, and
Condensed Consolidated Statements of Cash Flows have been prepared in accordance
with generally accepted accounting principles for interim financial information.
In the opinion of management, such information contains all adjustments,
consisting only of normal recurring adjustments, considered necessary for a fair
presentation of such information. The operating results for the three and six
months ended June 30, 2000 may not be indicative of the results of operations
for the year ending December 31, 2000 or any future period. This financial
information should be read in conjunction with the Company's audited
consolidated financial statements and footnotes thereto.
On May 5, 2000, the Board of Directors of the Company approved an
increase in the number of authorized shares of common stock of the Company to
17,661,840 and a four-for-one stock split, subject to the approval of the
shareholders and effective upon the filing of an Amendment to the Articles of
Incorporation of the Company with the Commonwealth of Virginia. The Board of
Directors also approved, subject to shareholder approval, an amendment to the
Anteon Corporation Omnibus Stock Plan to increase the number of shares of common
stock available for stock option grants from 575,000 to 675,000.
Certain fiscal year 1999 amounts have been reclassified to conform to
the June 30, 2000, unaudited condensed consolidated financial statement
presentation. During the current quarter the Company reclassified $7.9 million
in Due From Parent as a reduction of Additional Paid in Capital.
The Company had software sales of approximately $615,000 at June 30,
2000 and $0 at June 30, 1999. Software revenue is generated from licensing
software and providing services, including maintenance and technical support,
and consulting. The Company recognizes the revenue when the license agreement is
signed, the license fee is fixed and determinable, delivery of the software has
occurred, and collectibility of the fees is considered probable. Services
revenue consists of maintenance and technical support and is recognized ratably
over the service period. Other services revenues are recognized as the related
services are provided.
(2) PRO FORMA RESULTS FOR ACQUISITION OF ANALYSIS & TECHNOLOGY, INC.
On June 23, 1999, the Company acquired all of the outstanding stock of
Analysis & Technology, Inc. ("A&T"), a provider of systems and engineering
technologies, technology-based training systems, and information technologies to
the U.S. Government and commercial customers. The total purchase price paid,
including transaction costs, was $115.5 million and has been allocated to the
assets and liabilities.
The Company obtained an independent appraisal for the allocation of the
purchase price related to the acquisition of A&T. In addition to goodwill, the
appraisal identified two intangible assets ("other intangible assets"),
workforce in place and contract backlog. Based on the results of the valuation
the Company has adjusted its preliminary purchase price allocation from goodwill
to other intangibles as follows:
Estimated Useful
Life
----------------
Workforce $2,500,000 7 years
Contract backlog $6,800,000 5 years
The Company recorded approximately $1.5 million in amortization expense
in the second quarter ended June 30, 2000 to retroactively adjust amortization
expense to the date of acquisition, related to the above identifiable intangible
assets.
The Company recorded an increase to goodwill related to the A&T
acquisition of approximately $269,000 related to an adjustment to the fair value
of a building to be disposed of.
4
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(A majority-owned subsidiary of Azimuth Technologies, Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
The following unaudited pro forma summary presents consolidated
information as if the acquisition of A&T had occurred as of January 1, 1999. 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):
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999
----------------- ----------------
<S> <C> <C>
Total revenues 255,984 235,706
Total expenses 256,171 236,711
-------- --------
Net income (loss) (187) (1,005)
======== ========
</TABLE>
5
<PAGE>
ANTEON CORPORATION AND SUBSIDIARIES
(A majority-owned subsidiary of Azimuth Technologies, Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
(3) DOMESTIC SUBSIDIARIES SUMMARIZED FINANCIAL INFORMATION
Under the terms of the Senior Subordinated Notes, the Company's
wholly-owned domestic subsidiaries (the "Guarantor Subsidiaries") are guarantors
of the Senior Subordinated Notes. Such guarantees are full, unconditional and
joint and several. Separate unaudited condensed financial statements of the
Guarantor Subsidiaries are not presented because the Company's management has
determined that they would not be material to investors. The following
supplemental financial information sets forth, on a combined basis, condensed
balance sheets, statements of operations and statements of cash flows
information for the Guarantor Subsidiaries, the Company's non-guarantor
subsidiaries and for Anteon Corporation.
6
<PAGE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 2000
------------------------------------------------------------------------
CONSOLIDATED
UNAUDITED CONDENSED CONSOLIDATED ANTEON GUARANTOR NON-GUARANTOR ELIMINATION ANTEON
BALANCE SHEET CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES CORPORATION
----------- ------------ ------------- ------------- ------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash $ 439 $ 240 $ 630 $ -- $ 1,309
Receivables 51,626 68,242 436 -- 120,304
Other current assets 8,278 (1,772) 43 -- 6,549
Property and equipment, net 3,489 16,510 57 -- 20,056
Investment in and advances to subsidiaries 54,398 -- -- (54,398) --
Goodwill, net 122,786 -- -- -- 122,786
Other intangibles, net 7,583 -- -- -- 7,583
Other long-term assets 6,664 2,425 2 -- 9,091
--------- --------- --------- --------- ---------
Total assets $ 255,263 $ 85,645 $ 1,168 $ (54,398) $ 287,678
========= ========= ========= ========= =========
Indebtedness $ 181,600 $ -- $ -- $ -- $ 181,600
Accounts payable 10,267 9,201 212 -- 19,680
Accrued expenses 20,944 16,615 268 -- 37,827
Other current liabilities -- 369 -- -- 369
Other long-term liabilities 8,349 1,482 -- -- 9,831
--------- --------- --------- --------- ---------
Total liabilities 221,160 27,667 480 -- 249,307
Minority interest in subsidiaries -- -- 78 549 627
Total stockholders' equity 34,103 57,978 610 (54,947) 37,744
--------- --------- --------- --------- ---------
Total liabilities and stockholders' equity $ 255,263 $ 85,645 $ 1,168 $ (54,398) $ 287,678
========= ========= ========= ========= =========
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 2000
------------------------------------------------------------------------
CONSOLIDATED
UNAUDITED CONDENSED CONSOLIDATED ANTEON GUARANTOR NON-GUARANTOR ELIMINATION ANTEON
STATEMENT OF OPERATIONS CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES CORPORATION
----------- ------------ ------------- ------------- ------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues $ 98,059 $ 157,538 $ 1,293 $ (906) $ 255,984
Cost of revenues 87,749 134,531 1,234 (906) 222,608
--------- --------- --------- --------- ---------
Gross profit 10,310 23,007 59 -- 33,376
Total operating expenses 9,543 13,519 16 -- 23,078
--------- --------- --------- --------- ---------
Operating income 767 9,488 43 -- 10,298
Interest expense, net 10,714 30 -- -- 10,744
Minority interest in earnings of
subsidiaries -- -- 2 -- 2
--------- --------- --------- --------- ---------
Income (loss) before provision for income
taxes (9,947) 9,458 41 -- (448)
Provision (benefit) for income taxes (4,055) 3,769 25 -- (261)
--------- --------- --------- --------- ---------
Net income (loss) $ (5,892) $ 5,689 $ 16 $ -- $ (187)
========= ========= ========= ========= =========
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 2000
---------------------------------------------------------
CONSOLIDATED
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF ANTEON GUARANTOR NON-GUARANTOR ANTEON
CASH FLOWS CORPORATION SUBSIDIARIES SUBSIDIARIES CORPORATION
----------- ------------ ------------- ------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net income (loss) $ (5,892) $ 5,689 $ 16 $ (187)
Adjustments to reconcile change in net income
(loss) to net cash provided by operations:
Loss on sale of assets -- 117 -- 117
Depreciation and amortization 462 2,400 3 2,865
Amortization of noncompetes 448 -- -- 448
Amortization of goodwill 2,204 -- -- 2,204
Amortization of intangible assets 1,717 -- -- 1,717
Amortization of deferred financing fees 590 -- -- 590
Deferred Income Taxes (39) 68 (73) (44)
Minority interest in earnings of subsidiaries 2 -- -- 2
Changes in assets and liabilities (1,787) (5,975) 100 (7,662)
--------- --------- --------- ---------
Net cash provided by (used for) operating
activities (2,295) 2,299 46 50
--------- --------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment (879) (2,139) 11 (3,007)
Payment of Techmatics earn-out (5,500) -- -- (5,500)
Other, net (16) -- -- (16)
--------- --------- --------- ---------
Net cash used for investing activities (6,395) (2,139) 11 (8,523)
--------- --------- --------- ---------
Cash flow from financing activities:
Principal payments notes payable -- (173) -- (173)
Principal payments on subordinated notes
payable and other consideration (9,850) -- -- (9,850)
Proceeds from revolving facility 234,300 -- -- 234,300
Principal payments on revolving facility (215,600) -- -- (215,600)
Initial capitalization of joint venture 246 (246) -- --
Proceeds from issuance of common stock 44 -- -- 44
--------- --------- --------- ---------
Net cash provided by (used for) financing
activities 9,140 (419) -- 8,721
--------- --------- --------- ---------
Net increase (decrease) in cash and cash
equivalents 450 (259) 57 248
Cash and cash equivalents beginning of year (11) 499 573 1,061
--------- --------- --------- ---------
Cash and cash equivalents end of year $ 439 $ 240 $ 630 $ 1,309
========= ========= ========= =========
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1999
--------------------------------------------------------------------
CONSOLIDATED
UNAUDITED CONDENSED CONSOLIDATED ANTEON GUARANTOR NON-GUARANTOR ELIMINATION ANTEON
STATEMENT OF OPERATIONS CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES CORPORATION
----------- ------------ ------------- ----------- ------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues $ 94,117 $ 50,020 $ 1,775 $ (303) $145,609
Cost of revenues 85,518 41,717 1,644 (303) 128,576
-------- -------- -------- -------- --------
Gross profit 8,599 8,303 131 -- 17,033
Total operating expenses 5,513 4,798 74 -- 10,385
-------- -------- -------- -------- --------
Operating income 3,086 3,505 57 -- 6,648
Interest expense (income), net 5,536 (46) 10 -- 5,500
Minority interest in earnings of
subsidiaries -- -- 17 -- 17
-------- -------- -------- -------- --------
Income (loss) before provision for
income taxes (2,450) 3,551 30 -- 1,131
Provision (benefit) for income taxes (574) 1,141 30 -- 597
-------- -------- -------- -------- --------
Income (loss) before extraordinary loss (1,876) 2,410 -- -- 534
Early extinguishment of debt 463 -- -- -- 463
-------- -------- -------- -------- --------
Net income (loss) $ (2,339) $ 2,410 $ -- $ -- $ 71
======== ======== ======== ======== ========
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1999
----------------------------------------------------------
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CONSOLIDATED
CASH FLOWS ANTEON GUARANTOR NON-GUARANTOR ANTEON
CORPORATION SUBSIDIARIES SUBSIDIARIES CORPORATION
----------- ------------ ------------- -------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net income (loss) $ (2,327) $ 2,382 $ 16 $ 71
Adjustments to reconcile change in net income
(loss) to net cash provided by operations:
Extraordinary loss 772 -- -- 772
Depreciation and amortization 407 576 13 996
Amortization of noncompetes 454 -- -- 454
Amortization of goodwill 1,024 -- -- 1,024
Amortization of deferred financing and 102 -- -- 102
contract costs
Deferred income taxes -- -- 38 38
Minority interest in earnings of subsidiaries -- 17 -- 17
Changes in assets and liabilities, net of
acquired assets and liabilities 8,641 (2,918) 405 6,128
--------- --------- --------- ---------
Net cash provided by (used for) operating
activities 9,073 57 472 9,602
--------- --------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment (926) (294) (35) (1,255)
Acquisition of A&T, net of cash acquired (115,446) -- -- (115,446)
Purchases of investments (1,930) -- (9) (1,939)
Other, net (30) -- -- (30)
--------- --------- --------- ---------
Net cash used for investing activities (118,332) (294) (44) (118,670)
--------- --------- --------- ---------
Cash flow from financing activities:
Proceeds from bank notes payable 212,000 -- -- 212,000
Principal payments on bank notes payable (209,400) -- -- (209,400)
Issuance of senior subordinated notes payable 100,000 -- -- 100,000
Principal payments on SEG subnote payable (4,925) -- -- (4,925)
Deferred financing costs (8,535) -- -- (8,535)
Proceeds from issuance of common stock 22,536 -- -- 22,536
--------- --------- --------- ---------
Net cash provided by financing activities 111,676 -- -- 111,676
--------- --------- --------- ---------
Net increase (decrease) in cash and cash
equivalents 2,417 (237) 428 2,608
Cash and cash equivalents beginning of year 155 (234) 235 156
--------- --------- --------- ---------
Cash and cash equivalents end of year $ 2,572 $ (471) $ 663 $ 2,764
========= ========= ========= =========
</TABLE>
11
<PAGE>
(4) REVOLVING CREDIT FACILITY
On June 23, 1999 the Company entered into a New Credit Facility with nine
commercial banks. 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 April 1, 2000 through June 30, 2000, interest on the
Revolving Facility and Term Loan ranged from 11.25 percent to 11.75 percent.
Total funds available under the New Credit Facility as of June 30, 2000 were
$18.2 million.
(5) SEGMENT INFORMATION
Based on its organization, the Company operates in two business segments:
the Company's government contracting business ("Anteon") and IMC's commercial
custom training and performance solutions group ("Interactive Media").
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 is based on measures such as
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.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 2000
(AMOUNTS IN THOUSANDS)
--------------------------------------------------------
INTERACTIVE
ANTEON MEDIA ELIMINATIONS CONSOLIDATED
--------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Total assets $ 280,222 $ 7,456 $ -- $ 287,678
========= ========= ========= =========
Sales to unaffiliated customers 242,242 13,742 -- 255,984
Intersegment sales 2 84 (86) --
--------- --------- --------- ---------
Total revenues $ 242,244 $ 13,826 $ (86) $ 255,984
Operating income 10,298
Minority interest in losses of
subsidiaries 2
Interest expense, net 10,744
Income tax benefit (261)
---------
Net loss $ (187)
=========
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 2000
(AMOUNTS IN THOUSANDS)
-----------------------------------------------------------
INTERACTIVE
ANTEON MEDIA ELIMINATIONS CONSOLIDATED
--------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Total assets $ 280,222 $ 7,456 $ -- $ 287,678
========= ========= ========= =========
Sales to unaffiliated customers 123,691 6,593 -- 130,284
Intersegment sales -- -- -- --
--------- --------- --------- ---------
Total revenues $ 123,691 $ 6,593 $ -- $ 130,284
Operating income 4,625
Minority interest in earnings of subsidiaries 5
Interest expense, net 5,341
Income tax benefit (403)
---------
Net loss $ (318)
=========
</TABLE>
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of
The Private Securities Litigation Reform Act of 1995. These statements are based
on current expectations and are subject to a number of risks and uncertainties.
Statements relating to the Company's or management's intentions, hopes, beliefs,
expectations, or predictions of the future are forward-looking statements.
Forward-looking statements discuss the Company's backlog, liquidity and capital
resources. The Company cautions readers that actual results could differ
materially from those in the forward-looking statements. The factors that could
cause actual results to differ materially include the following: the integration
of A&T into our business, general economic and business conditions, program
funding priorities, changes in Federal government procurement laws, regulations
and policies, budget reductions in defense programs, technological changes,
delays in the development and acceptance of new commercial products, pricing
pressures from competitors and/or customers, and our ability to attract and
retain qualified personnel.
GENERAL
Anteon is a leading provider of advanced information technology and
engineering services principally to a wide range of customers within the U.S.
Federal government. The Company serves hundreds of governmental clients through
over 40 offices worldwide. The Company has performed work for all 14
Cabinet-level agencies, designing, maintaining and upgrading critical elements
of the government's information technology infrastructure, such as emergency
response, defense, intelligence, logistics and financial management systems. The
Federal government is among the world's largest purchasers of information
technology with expected total expenditures in fiscal 2000 in excess of $30
billion. In April 1996 an investor group led by affiliates of Caxton-Iseman
Capital, Inc. acquired Ogden Professional Services Corporation, which was
renamed Anteon Corporation. Since that acquisition, the Company has implemented
a strategy designed to increase revenues through internal growth and
acquisitions, and to improve earnings before interest, taxes, depreciation and
amortization, profit margins and improve asset turnover.
The contracts the Company performs may be categorized into three primary
types: time and materials ("time and materials"), cost-plus fixed fee
reimbursement ("cost-plus") and firm fixed price ("fixed price"). Revenue for
time and materials contracts is recorded at hourly rates, which are negotiated
with the customer. Time and materials contracts are typically more profitable
because of our ability to negotiate rates and manage costs on those contracts.
Revenue is recognized under cost-plus contracts on the basis of direct and
indirect costs incurred plus a negotiated profit calculated as a percentage of
our costs. Cost-plus contracts provide less risk than other contract types
because the Company is reimbursed for all direct costs and certain indirect
costs, such as overhead and general and administrative charges, and is paid a
fixed fee for work performed. Revenues are recognized under fixed price
contracts based on the percentage-of-completion method. The Company may be
exposed to cost overruns if the Company encounters variances from estimated
costs under fixed price contracts. Accordingly, the Company attempts to minimize
the number of fixed price contracts, particularly for advanced software
development projects.
Prices on Federal government contracts are generally set using estimated
costs plus a negotiated profit percentage. Under time and materials and fixed
price contracts, margins are not limited by law or regulation; however, the
Federal government's profit objectives in negotiating time and materials and
fixed price contracts seldom provide for operating profits in excess of 15%. Due
to competitive pressures, operating profits on time and materials and fixed
price contracts are often less than 10%. Under cost-plus contracts, operating
profits are statutorily limited to 15% of costs.
Anteon's costs may be categorized as direct costs such as labor and
related fringe costs which are directly attributable to contract performance,
and indirect costs such as corporate overhead which are not directly
attributable to contract performance. Under our time and materials and cost-plus
contracts, the Company charges direct costs and an agreed-upon portion of
indirect costs to the customer. A key element in the successful bidding and
execution of contracts is the control of indirect costs. The Company has
developed comprehensive management information and resource management systems
in order to increase the productivity of the finance and administrative support
areas. As a result of these efforts, the Company's indirect costs have grown at
rates much lower than overall revenues.
In each year a significant portion of the Company's revenues is derived
from contract backlog and a significant portion of that backlog represents work
related to maintenance, upgrade or replacement of systems under contracts or
projects for which the Company is the incumbent provider. Proper management of
contracts is critical to the overall financial success of Anteon and the Company
believes that it manages costs effectively. This allows the Company to be highly
competitive on price. The demonstrated performance record and service excellence
have enabled the Company to maintain its position as an incumbent service
provider on all major contracts that have been recompeted over the past three
years, while increasing backlog from $428 million in 1996 to $2.6 billion at
June 30, 2000, of which $224 million was funded as of June 30, 2000. The
Company's total backlog represents the aggregate contract revenue remaining to
be earned by the
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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 is based upon amounts
actually appropriated by a customer for payment of goods and services. Because
the federal government operates under annual appropriations, agencies of the
federal government typically fund contracts on an incremental basis.
Accordingly, the majority of the total contract backlog is not funded.
RESULTS OF OPERATIONS
A summary of comparative results for the quarters ended June 30, 2000 and June
30, 1999 is as follows:
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30,
(amounts in thousands)
----------------------------------------------------------------------------------
PERCENTAGE
2000 1999 CHANGE
--------- --------- -----------
<S> <C> <C> <C>
Revenue $ 130,284 $ 73,052 78.3%
Operating income $ 4,625 $ 3,271 41.3%
Income before provision for
income taxes $ (721) $ 32 (2353.1%)
Net income (loss) $ (318) $ (484) (34.3%)
</TABLE>
Revenue increased 78.3% to $130.3 million for the quarter ended June 30,
2000 from $73.1 million for the quarter ended June 30, 1999. For the six month
period ended June 30, 2000, revenue increased 75.8% to $256.0 million from
$145.6 million for the six month period ended June 30, 1999. The increases in
revenue were attributable to internal growth in several business units as well
as the addition on June 23, 1999 of the Company's latest acquisition, A&T. For
the quarter ended June 30, 2000, internal growth was 15.1%. It was driven by an
increase in the Company's Intelligence Systems, Products Applications and
Services ("PAS"), Systems Engineering ("Techmatics") and Education Groups. In
addition, A&T provided $46.4 million in revenue during the second quarter of
2000 which was a 4.4% increase from the second quarter of 1999.
Costs of revenues increased $48.8 million from second quarter 1999 to
second quarter 2000. Costs of revenues for the six month period ended June 30,
2000 increased by $94.0 million from the six month period ended June 30, 1999.
Over 90% of quarterly increase, or $40.9 million, was due to the addition of A&T
in June of 1999. The remaining portion of the increase was attributable to an
increase of costs related to PAS and Systems Engineering and Intelligence
Systems sales.
G&A expense increased $4.9 million from second quarter 1999 to second
quarter 2000 due primarily to the addition of the A&T strategic business unit.
G&A expense also increased for the six month period ended June 30, 2000 by $9.8
million from the six month period ended June 30, 1999. G&A expenses also
increased due to additional costs incurred in support of the growing PAS,
Systems Engineering and Anteon-CITI, LLC businesses. Anteon-CITI, LLC is a joint
venture between Anteon and Crimminal Investigative Technology Incorporated
("CITI") formed in 1999 to develop and market certain investigative support
products and services to government law enforcement agencies.
Operating income increased 41.4% for the quarter ended June 30, 2000 to
$4.6 million from $3.3 million for the quarter ended June 30, 1999. Operating
income increased 54.9% to $10.3 million for the six month period ended June 30,
2000 from $6.6 million for the six month period ended June 30, 1999. Operating
earnings as a percentage of revenue (operating margin) decreased to 3.6%
compared with 4.5% in the prior year comparable quarter. This was due to the
retroactive adjustment of amortization expense for other intangible assets. This
decrease was offset by increased operating earnings margin for the quarter from
the Information Systems and Applied Technology Groups. In addition, A&T
contributed $2.6 million to earnings with an above average company wide margin
during the second quarter.
Interest expense increased $2.1 million to $5.3 million for the quarter
ended June 30, 2000 from $3.2 million for the quarter ended June 30, 1999.
Interest expense increased $5.2 million to $10.7 million for the six months
ended June 30, 2000 from $5.5 million for the six months ended June 30, 1999.
The increases were primarily due to the $100 million in 12% senior subordinated
notes which were issued in May 1999. In addition, greater interest expense was
incurred for deferred loan and financing fee amortization.
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Earnings before income taxes decreased 2353.1% to $(.7) million in the
second quarter of fiscal 2000 from $.03 million in the second quarter of 1999.
This decrease was due to the retroactive adjustment of amortization expense for
other intangible assets. Earnings before income taxes decreased by $1.58 million
to $(.45) million for the six month period ended June 30, 2000 from $1.13
million for the six month period ended June 30, 1999. The Company's effective
tax rate was (55.9%) for the three-month period ended June 30, 2000 compared
with 165.6% for the three-month period ended June 30, 1999. The lower effective
tax rate in the current quarter was due primarily to a higher tax provision
adjustment in the second quarter of 1999 which was made for the first six months
of 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $50,000 in cash from operations for the six months
ended June 30, 2000. By comparison, the Company had a $9.6 million positive
cash flow from operations for the six months ended June 30, 1999. Contract
receivables totaled $120.3 million at June 30, 2000 and represented 41.8% of
total assets at that date, which represented an increase of $21.4 million
from 1999. In addition to interest payments on the Company's term loan and
revolving loan credit facility with a syndicate of lenders led by Credit
Suisse First Boston and Mellon Bank (the "New Credit Facility"), the Company
has interest payments of $12 million due in 2000 for the Senior Subordinated
Notes. A payment of $6 million was made in May 2000 and another $6 million
payment will be made in November 2000 to satisfy the amount due on the
Senior Subordinated Notes. Net cash used for investing activities for the
first six months of 2000 totaled $3.0 million, which was used primarily for
purchases of capital equipment, software and the payment of $5.5 million
related to the Techmatics earnout provision. Net changes in financing
activities during the second quarter of 2000 included $9.9 million in paydown
of obligations relating to the Company's acquisition of Techmatics, Inc. in
May 1998, of which $9.0 million related to the payment of subordinated notes
payable and $.85 million payment related to the payment of various
non-compete agreements with former Techmatics employees. These payments were
offset by a $18.7 million increase in the line of credit.
The total funds remaining available to the Company under its New Credit
Facility as of June 30, 2000 was $18.2 million and, in the opinion of
management, are sufficient to meet ongoing working capital requirements for the
next 12 months. Borrowings under the revolving credit facility were $21.6
million as of June 30, 2000.
As of June 30, 2000 the Company does not have any major capital
commitments greater than $1.0 million.
The Company believes that inflation has not had a material effect on its
business.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES ("SFAS 133").
SFAS No. 133, as amended by SFAS No. 137 and further amended by SFAS No. 138,
established accounting and reporting standards for derivative financial
instruments and associated hedging activities as well as hedging activities in
general. SFAS No. 133, as amended by SFAS No. 137 and as further amended by SFAS
No. 138 is effective for all fiscal quarters of all fiscal years beginning after
June 15, 2000. The Company is reviewing this standard and does not expect the
adoption of SFAS No. 133, as amended, to have a material effect on its
consolidated results of operations or its financial position.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial
Statements, as amended by SAB 101A and SAB 101B, which provides guidance on the
recognition, presentation, and disclosure of revenue in financial statements
filed with the SEC. SAB 101 provides guidance on necessary disclosures relating
to revenue recognition policies in addition to outlining the criteria that must
be met in order to recognize revenue. Dependent upon the final guidance on SAB
101 which is expected to be issued by the SEC in the fourth quarter of this
year, the Company will review this guidance, however, the Company does not
expect this guidance to have a material effect on its consolidated results of
operations or its financial position.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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 loan and revolving credit 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.
17
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ANTEON CORPORATION
Date: August 21, 2000
/s/ Joseph Kampf
------------------------------------
Joseph Kampf - President and Chief
Executive Officer
Date: August 21, 2000
/s/ Carlton B. Crenshaw
------------------------------------
Carlton B. Crenshaw - Senior Vice
President of Finance and
Administrative and Chief
Financial Officer
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PART II. OTHER INFORMATION REQUIRED IN REPORT
ITEM 1. LEGAL PROCEEDINGS
NONE.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
NONE.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE.
ITEM 5. OTHER INFORMATION
NONE.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
27.1 FINANCIAL DATA SCHEDULE
B. REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during
the quarter ended June 30, 2000.
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EXHIBIT INDEX
Exhibit Number Description of Documents
27 Financial Data Schedules
- For the quarter ended June 30, 2000
20
