<PAGE>
Form 10-Q for ANTEON CORPORATION filed on May 15, 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 March 31, 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 March 31, 2000, there were 3,559,232 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
MARCH 31, 2000 AND DECEMBER 31, 1999 1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND
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
PART II. OTHER INFORMATION REQUIRED IN REPORT
ITEM 1. LEGAL PROCEEDINGS 18
ITEM 2. CHANGES IN SECURITIES 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>
March 31, 2000 December 31, 1999
(Unaudited) (Audited)
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,771 $ 1,061
Accounts receivable, net 107,245 107,446
Prepaid expenses and other current assets 9,707 9,093
--------- ---------
$ 118,723 $ 117,600
Total current assets
Due from parent 7,673 7,525
Property and equipment, net 19,990 19,953
Goodwill, net 129,371 130,563
Other assets, net 9,245 9,535
--------- ---------
Total assets $ 285,002 $ 285,176
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 14,398 $ 18,211
Accrued expenses 41,113 35,625
Subordinated notes payable, current portion 8,936 8,840
Business purchase consideration payable 5,500 5,500
Other current liabilities, net 1,200 1,205
--------- ---------
Total current liabilities $ 71,147 $ 69,381
Revolving credit facility 1,000 2,900
Term loan facility 60,000 60,000
Senior subordinated notes payable 100,000 100,000
Deferred tax liabilities, net 4,857 4,921
Other long term liabilities 1,569 1,681
--------- ---------
Total liabilities $ 238,573 $ 238,883
Minority interest in subsidiaries 622 625
Shareholders' equity:
Common stock 178 178
Additional paid-in capital 40,769 40,759
Treasury stock (5) (5)
Accumulated other comprehensive income (loss) (8) (5)
Retained earnings 4,873 4,741
--------- ---------
Total shareholders' equity $ 45,807 $ 45,668
--------- ---------
Total liabilities and shareholders' equity $ 285,002 $ 285,176
========= =========
</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>
For the three months ended
March 31,
-------------------------
2000 1999
--------- ---------
<S> <C> <C>
Revenues $ 125,700 $ 72,557
Costs of revenues 109,479 64,243
--------- ---------
Gross profit 16,221 8,314
Operating expenses:
General and administrative expenses 9,095 4,198
Amortization of noncompete agreements 227 227
Goodwill amortization 1,209 512
Cost of acquisitions 17 --
--------- ---------
Total operating expenses 10,548 4,937
--------- ---------
Operating income 5,673 3,377
Interest expense, net of interest income of $71 and $47
respectively 5,403 2,269
Minority interest in earnings (losses) of subsidiaries (3) 9
--------- ---------
Income before provision for income taxes 273 1,099
Provision for income taxes 142 544
--------- ---------
Net income (loss) $ 131 $ 555
========= =========
</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 three months ended
----------------------------------
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 131 $ 555
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities
Depreciation and amortization 1,105 512
Noncompete amortization 227 227
Amortization of goodwill 1,209 512
Amortization of deferred financing fees 295 301
Deferred income taxes 200 26
Minority interest in earnings (losses) of subsidiaries (3) 9
Changes in assets and liabilities 683 (6,424)
--------- ---------
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES 3,847 (4,282)
--------- ---------
INVESTING ACTIVITIES:
Purchases of property, buildings, and equipment (1,142) (846)
Purchases of long-term investments -- (3,040)
Other, net (17) (30)
--------- ---------
NET CASH USED FOR INVESTING ACTIVITIES (1,159) (3,916)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from bank notes payable -- 65,200
Principal payments on bank notes payable (88) (56,300)
Proceeds from revolving facility 102,500 --
Principal payments on revolving facility (104,400) --
Proceeds from issuance of common stock 10 2
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES (1,978) 8,902
--------- ---------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) in cash and cash equivalents 710 704
Balance at beginning of period 1,061 156
--------- ---------
Balance at end of period $ 1,771 $ 860
========= =========
Supplemental disclosure of cash flow information:
Interest paid $ 2,092 2,079
Income taxes paid 63 6
========= =========
</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
MARCH 31, 2000 AND 1999
(1) BASIS OF PRESENTATION
The unaudited interim financial information for the three months ended
March 31, 2000 and March 31, 1999 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 months
ended March 31, 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.
(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 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):
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
2000 1999
------------------ ------------------
Total revenues 125,700 118,241
Total expenses 125,569 120,245
-------- --------
Net income (loss) 131 (2,004)
======== ========
(3) DOMESTIC SUBSIDIARIES SUMMARIZED FINANCIAL INFORMATION
Under the terms of the Senior Subordinated Notes, the Company's
wholly-owned domestic subsidiaries (the "Subsidiary Guarantors") are guarantors
of the Senior Subordinated Notes. Such guarantees are full, unconditional and
joint and several. Separate unaudited condensed financial statements of the
Subsidiary Guarantors are not presented because the Company's management has
determined that they would not be material to investors. The following
supplemental financial information sets forth, on a combined basis, condensed
balance sheets, statements of operations and statements of cash flows
information for the Subsidiary Guarantors, the Company's non-guarantor
subsidiaries and for Anteon Corporation.
4
<PAGE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 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 $ 869 $ 394 $ 508 $ -- $ 1,771
Receivables 44,491 62,018 736 -- 107,245
Other current assets 10,342 (763) 128 -- 9,707
Property and equipment, net 3,221 16,702 67 -- 19,990
Due from parent (3,030) 10,826 (123) -- 7,673
Investment in and advances to subsidiaries 54,398 -- -- (54,398) --
Goodwill, net 129,371 -- -- -- 129,371
Other long-term assets 7,068 2,175 2 -- 9,245
--------- --------- --------- --------- ---------
Total assets $ 246,730 $ 91,352 $ 1,318 $ (54,398) $ 285,002
========= ========= ========= ========= =========
Indebtedness $ 175,436 $ -- $ -- $ -- $ 175,436
Accounts payable 10,930 3,267 201 -- 14,398
Accrued expenses 21,371 19,285 457 -- 41,113
Other current liabilities 837 363 -- -- 1,200
Other long-term liabilities 4,784 1,569 73 -- 6,426
--------- --------- --------- --------- ---------
Total liabilities 213,358 24,484 731 0 238,573
Minority interest in subsidiaries -- -- 73 549 622
Total stockholders' equity 33,372 66,868 514 (54,947) 45,807
--------- --------- --------- --------- ---------
Total liabilities and stockholders' equity $ 246,730 $ 91,352 $ 1,318 $ (54,398) $ 285,002
========= ========= ========= ========= =========
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 2000
--------------------------------------------------------------------------
CONSOLIDATED
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF ANTEON GUARANTOR NON-GUARANTOR ELIMINATION ANTEON
OPERATIONS CORPORATION SUBSIDIARIES SUBSIDIARIES ENTRIES CORPORATION
---------- ----------- ------------ ------------ ------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues $ 48,277 $ 77,039 $ 754 $ (370) $ 125,700
Cost of revenues 43,699 65,458 692 (370) 109,479
--------- --------- --------- --------- ---------
Gross profit 4,578 11,581 62 0 16,221
Total operating expenses 3,699 6,840 9 -- 10,548
--------- --------- --------- --------- ---------
Operating income 879 4,741 53 0 5,673
Interest expense (income), net 5,364 36 3 -- 5,403
Minority interest in earnings (losses) of
subsidiaries -- -- (3) -- (3)
--------- --------- --------- --------- ---------
Income (loss) before provision for income taxes
(4,485) 4,705 53 0 273
Provision (benefit) for income taxes (1,780) 1,908 14 -- 142
--------- --------- --------- --------- ---------
Net income (loss) $ (2,705) $ 2,797 $ 39 $ 0 $ 131
========= ========= ========= ========= =========
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 2000
------------------------------------------------------------
CONSOLIDATED
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS ANTEON GUARANTOR NON-GUARANTOR ANTEON
CORPORATION SUBSIDIARIES SUBSIDIARIES CORPORATION
----------- ------------ ------------ -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net income (loss) $ (2,705) $ 2,800 $ 36 $ 131
Adjustments to reconcile change in net income (loss) to net cash
provided by operations:
Depreciation and amortization 225 875 5 1,105
Amortization of Goodwill 1,209 -- -- 1,209
Amortization of noncompetes 227 -- -- 227
Amortization of deferred financing fees 295 -- -- 295
Deferred Income Taxes 200 -- -- 200
Minority interest in earnings of subsidiaries -- (3) -- (3)
Changes in assets and liabilities 3,464 (2,676) (105) 683
--------- --------- --------- ---------
Net cash provided by (used for) operating activities 2,915 996 (64) 3,847
--------- --------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment (373) (768) (1) (1,142)
Other, net (17) -- -- (17)
--------- --------- --------- ---------
Net cash used for investing activities (390) (768) (1) (1,159)
--------- --------- --------- ---------
Cash flow from financing activities:
Payments on A&T's notes payable -- (88) -- (88)
Proceeds from revolving facility 102,500 -- -- 102,500
Principal payments on revolving facility (104,400) -- -- (104,400)
Initial capitalization of joint venture 246 (246) -- --
Proceeds from issuance of common stock 10 -- -- 10
--------- --------- --------- ---------
Net cash provided by (used for) financing activities (1,644) (334) -- (1,978)
--------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents 881 (106) (65) 710
Cash and cash equivalents beginning of year (11) 499 573 1,061
--------- --------- --------- ---------
Cash and cash equivalents end of year $ 870 $ 393 $ 508 $ 1,771
========= ========= ========= =========
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 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 $ 47,239 $ 24,406 $ 1,028 $ (116) $ 72,557
Cost of revenues 42,705 20,708 946 (116) 64,243
-------- -------- -------- -------- --------
Gross profit 4,534 3,698 82 -- 8,314
Total operating expenses 2,609 2,307 21 -- 4,937
-------- -------- -------- -------- --------
Operating income 1,925 1,391 61 -- 3,377
Interest expense (income), net 2,289 (26) 6 -- 2,269
Minority interest in earnings of subsidiaries
-- -- 9 -- 9
-------- -------- -------- -------- --------
Income (loss) before provision for income taxes
(364) 1,417 46 -- 1,099
Provision (benefit) for income taxes (54) 582 16 -- 544
-------- -------- -------- -------- --------
Net income (loss) $ (310) $ 835 $ 30 $ -- $ 555
======== ======== ======== ======== ========
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1999
--------------------------------------------------------
UNAUDITED CONDENSED CONSOLIDATED CONSOLIDATED
STATEMENT OF CASH FLOWS ANTEON GUARANTOR NON-GUARANTOR ANTEON
CORPORATION SUBSIDIARIES SUBSIDIARIES CORPORATION
----------- ------------ ------------ -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net income (loss) $ (309) $ 835 $ 29 $ 555
Adjustments to reconcile change in net
income (loss) to net cash
provided by operations:
Depreciation and amortization 217 288 7 512
Amortization of Goodwill 512 -- -- 512
Amortization of noncompetes 227 -- -- 227
Amortization of deferred financing fees 301 -- -- 301
Deferred income taxes -- -- 26 26
Minority interest in earnings of subsidiaries -- -- 9 9
Changes in assets and liabilities (6,152) (274) 2 (6,424)
-------- -------- -------- --------
Net cash provided by (used for) operating activities (5,204) 849 73 (4,282)
-------- -------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment (593) (220) (33) (846)
Acquisitions, net of cash acquired (30) -- -- (30)
Cost of investments (3,040) -- -- (3,040)
-------- -------- -------- --------
Net cash used for investing activities (3,663) (220) (33) (3,916)
-------- -------- -------- --------
Cash flow from financing activities:
Proceeds from bank notes payable 65,200 -- -- 65,200
Principal payments on bank notes payable (56,300) -- -- (56,300)
Proceeds from issuance of common stock 2 -- -- 2
-------- -------- -------- --------
Net cash provided by financing activities 8,902 -- -- 8,902
-------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents 35 629 40 704
Cash and cash equivalents beginning of year 154 (233) 235 156
-------- -------- -------- --------
Cash and cash equivalents end of year $ 189 $ 396 $ 275 $ 860
======== ======== ======== ========
</TABLE>
9
<PAGE>
(4) SEGMENT INFORMATION
The Company adopted Statement of Financial Accounting Standards No. 131
("SFAS No. 131"), DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION as of June 30, 1999. SFAS No. 131 establishes annual and interim
reporting standards for an enterprise's operating segments.
Based on its organization, the Company operates in two business segments:
the company's government contracting business and IMC's commercial custom
training and performance solutions group.
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>
THREE MONTHS ENDED MARCH 31, 2000
(AMOUNTS IN THOUSANDS)
INTERACTIVE
ANTEON MEDIA ELIMINATIONS CONSOLIDATED
--------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Total assets $ 278,006 $ 6,996 $ -- $ 285,002
========= ========= ========= =========
Sales to unaffiliated customers 118,551 7,149 -- 125,700
Intersegment sales 1 84 (85) --
--------- --------- --------- ---------
Total revenues $ 118,552 $ 7,233 $ (85) $ 125,700
Operating income 5,133 540 -- 5,673
Minority interest in losses of subsidiaries (3)
Interest expense, net 5,403
Provision for income taxes 142
---------
Net loss $ 131
=========
</TABLE>
10
<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, 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, 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
recognition 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
11
<PAGE>
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 $2.1 billion at March 31, 2000, of which $203 million was funded as
of March 31, 2000. The Company's total backlog represents the aggregate contract
revenue remaining to be earned by the Company at a given time over the life of
its contracts. When more than one company is awarded contracts for a given work
requirement, the Company includes in total backlog its estimate of the contract
revenue it expects to earn over the remaining life of the contract. Funded
backlog, 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 March 31, 2000 and
March 31, 1999 is as follows:
QUARTER ENDED MARCH 31
(amounts in thousands)
- -----------------------------------------------------------------------------
PERCENTAGE
2000 1999 CHANGE
--------- --------- ----------
Revenue $ 125,700 $ 72,557 73.2%
Operating income $ 5,673 $ 3,377 67.9%
Income before provision for income
taxes $ 273 $ 1,099 (75.2%)
Net income (loss) $ 131 $ 555 (76.4%)
Revenue increased 73.2% to $125.7 million for the quarter ended March
31, 2000 from $72.6 million for the quarter ended March 31, 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 March 31, 2000, internal growth was
7%. It was driven by an increase in the Company's Products Applications
and Services ("PAS"), Systems Engineering ("Techmatics") Group and gains
recorded on contracts closed out during the period. In addition, A&T provided
$50.4 million in revenue during the first quarter of 2000.
Operating income increased 67.9% for the quarter ended March 31, 2000
to $5.7 million from $3.4 million for the quarter ended March 31, 1999.
Operating earnings as a percentage of revenue (operating margin) decreased to
4.5% compared with 4.6% in the prior year comparable quarter. The decreased
operating earnings margin for the quarter resulted from an increase in
goodwill amortization attributed to the purchase of A&T in June 1999.
However, A&T contributed $3.0 million to earnings with an above average
company wide margin during the first quarter.
Cost of Revenues increased $45.2 million from first quarter 1999 to
first quarter 2000. Over 90% of this increase, or $40.9 million, was due to
the addition of A&T in June of 1999. An additional 8% of the increase, or
$3.7M, was due to costs related to increased sales of the PAS business unit.
G&A expenses increased $4.2 million from first quarter 1999 to first
quarter 2000 due primarily to the addition of the AT&T. G&A expenses also
increased due to additional costs incurred in support of the growing PAS and
ANTEON/CITI ("Criminal Investigative Technology, Inc.") businesses.
Interest expense increased for the three month period ended March 31, 2000
from the comparable period of 1999 due primarily to the $100 million in 12%
senior subordinated notes which we issued in May 1999. In addition, greater
interest expense was incurred for deferred loan and financing fee amortization.
Earnings before income taxes decreased 75.2% to $0.2 million in the
first quarter of fiscal 2000 from $1.1 million in the first quarter of 1999.
This was due primarily to the increased interest expense for the 12% senior
subordinated notes and goodwill amortization related to the A&T acquisition.
The Company's effective tax rate was 52.0% for the three-month period ended
March 31, 2000 compared with 49.5% for the three-month period ended March 31,
1999. The higher effective tax rate in the current quarter was due primarily
to an increase in nondeductible amortization of goodwill associated with the
Company's acquisitions.
12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $3.8 million in cash from operations for the
quarter ended March 31, 2000. By comparison, the Company had a $4.3 million
cash outflow for the quarter ended March 31, 1999. The cash flow improvement
during the first quarter was attributable to improvements in the Company's
billing and collection processes. Contract receivables totaled $107.2 million
at March 31, 2000 and represented 38% of total assets at that date. In
addition to interest payments on the New Credit Facility, the Company has
interest payments of $12 million due in 2000 for the Senior Subordinated
Notes. These payments will be made in $6 million increments in each of May
2000 and November 2000. For the first quarter of 2000, net cash used by
investing activities was $1.2 million. The primary use of cash in the first
quarter was to pay down the company's revolving line of credit.
The total funds available to the Company under its New Credit Facility as
of March 31, 2000 were $14.5 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 $1.0 million as of March 31,
2000.
As of March 31, 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 1998, the Financial Accounting Standards Board issued SFAS No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES ("SFAS 133"). SFAS
No. 133 becomes effective June 15, 2000 and will require the Company to disclose
additional information on any hedging activities. The Company is reviewing this
standard; however, it is not expected that implementing this standard will
significantly impact the Company.
13
<PAGE>
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: May 15, 2000
----------------------------------------------------
Joseph Kampf - President and Chief Executive Officer
Date: May 15, 2000
----------------------------------------------------
Carlton B. Crenshaw - Senior Vice President of
Finance and Administrative
and Chief Financial Officer
14
<PAGE>
PART II. OTHER INFORMATION REQUIRED IN REPORT
ITEM 1. LEGAL PROCEEDINGS
NONE.
ITEM 2. CHANGES IN SECURITIES
NONE.
ITEM 3. DEFAULTS UPON SENIOR SUBORDINATED 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 March 31, 2000.
15
<PAGE>
EXHIBIT INDEX
Exhibit Number Description of Documents
27 Financial Data Schedules
- For the quarter ended March 31, 2000
16
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<NAME> ANTEON CORPORATION
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<FISCAL-YEAR-END> DEC-31-1999
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0
0
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