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================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ----------- TO ----------
COMMISSION FILE NUMBER: 0-14161
------------------------
ANALYSIS & TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
CONNECTICUT 95-2579365
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
ROUTE 2 06359
P.O. BOX 220 (ZIP CODE)
NORTH STONINGTON, CONNECTICUT
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (860) 599-3910
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, NO PAR
VALUE
------------------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ]
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K (SECTION 229.405 OF THIS CHAPTER) IS NOT CONTAINED HEREIN,
AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE
PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS
FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [ ]
THE AGGREGATE MARKET VALUE OF THE COMMON STOCK HELD BY SHAREHOLDERS
CONSIDERED BY THE REGISTRANT FOR THIS PURPOSE TO BE NON-AFFILIATES OF THE
REGISTRANT ON JUNE 1, 1998 WAS APPROXIMATELY $61,866,070, BASED UPON THE LAST
REPORTED SALES PRICE OF THE COMMON STOCK ON THE NASDAQ STOCK MARKET, INC. ON
THAT DATE.
NUMBER OF SHARES OF COMMON STOCK, NO PAR VALUE, OUTSTANDING AT JUNE 5,
1998: 3,669,239
DOCUMENTS INCORPORATED BY REFERENCE
THE FOLLOWING DOCUMENTS ARE HEREBY INCORPORATED HEREIN BY REFERENCE:
CERTAIN INFORMATION IN PARTS I AND II OF THE FORM 10-K IS INCORPORATED BY
REFERENCE FROM THE REGISTRANT'S 1998 ANNUAL REPORT TO SHAREHOLDERS.
CERTAIN INFORMATION IN PART III OF THE FORM 10-K IS INCORPORATED BY
REFERENCE FROM THE REGISTRANT'S PROXY STATEMENT FOR THE 1998 ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON AUGUST 11, 1998.
================================================================================
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PART I
ITEM 1. BUSINESS
General
Analysis & Technology, Inc. (the "Company") was incorporated in Connecticut
in 1969. The Company initially provided tactical analysis to the Office of Naval
Research and sonar analysis to the Naval Underwater Systems Center, now known as
the Naval Undersea Warfare Center. During the past twenty-nine years, the
Company, including subsidiaries, has expanded its business to provide
engineering and information technology services and products, and
technology-based training systems, for the military, civil government agencies,
and private industry.
The Company is implementing a strategic plan to continue building its core
engineering and information technologies business while transferring its
expertise in technology-based training systems to new government and commercial
markets. In recent years, the Company has created several new business units
through internal development and acquisitions in connection with the
implementation of this strategic plan and may create or acquire additional
business units in the future.
The Company has the following wholly owned subsidiaries:
- Interactive Media Corp. ("Interactive Media") which designs and
implements training programs for commercial and government customers;
- Integrated Performance Decisions, Inc. ("IPD") which provides information
technology services, and develops and implements performance decision
software products for U.S. Navy (the "Navy") customers. IPD also provides
information technology products and services for commercial customers.
- Analysis & Technology Australia Pty. Ltd. which provides training systems
and software development services in Australia. Analysis & Technology
International Corporation and Numerical Decisions, Inc. are subsidiaries
formed by the Company to perform international work but are not currently
operational.
The corporate office of the Company is located in North Stonington,
Connecticut. The Company presently employs 1,606 full-time employees in the
United States, Australia, and Canada.
In February 1986, the Company conducted an underwritten public offering of
its common shares. Since that time, the Company's stock has traded on The Nasdaq
Stock Market, Inc. under the symbol AATI.
Services and Products
The Company provides professional and technical services to commercial and
government clients. The main categories of the Company's business are
engineering and information technology services and products and
technology-based training systems. The Company is organized along these service
and product lines. The descriptions set forth below reflect this organization.
ENGINEERING AND INFORMATION TECHNOLOGY SERVICES AND PRODUCTS
The Company provides engineering and information technology
(Engineering/IT) services and products primarily to the Navy and, to a lesser
extent, to other defense, civil government, and commercial customers. Within
Engineering/IT, the Company provides services and products in the areas
described below.
Engineering Technologies
The Company provides design, analytical, and experimental studies in
several engineering technology areas. These are performed primarily for the
Navy and to a lesser extent for commercial customers.
Company engineers and scientists support the Navy in engineering
technologies related to the development of submarines and surface ships.
The Company provides services in acoustics, applied
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mechanics, materials analysis, machinery research and development, and
naval architecture. In acoustics, the Company provides the full spectrum of
noise control engineering, structural acoustic analysis, and experimental
acoustics support. Applied mechanics engineers design, analyze, and test a
wide variety of structures and equipment in a multitude of dynamic
environments with particular emphasis on ship survivability. In materials
analysis, the Company's engineers design treatments to reduce acoustic
signature and design composite structures for submarines and surface ships.
The Company's machinery research and development engineers are involved in
analyzing and testing advanced electrical and mechanical systems for naval
applications. The Company's naval architects offer professional naval
architecture and marine engineering services for the complete range of
ships, submarines and submersibles, advanced marine vehicles, small craft,
and yachts. They also develop and market naval architectural software
packages, as well as custom software applications for the commercial marine
field.
Company engineers design, develop, implement, and analyze signal
processing algorithms related to submarine and surface ship combat systems.
The algorithms are developed to estimate target range, bearing, course,
speed, and depth. Company engineers also develop, implement, and verify
digital signal processing systems for both military and commercial
customers. The work involves active and passive processing systems, custom
high-speed spectrum analyzers, and other software systems for commercial
off-the-shelf ("COTS") hardware. Company software and hardware engineers
integrate complex COTS products throughout the engineering process, from
research and development through installation and testing.
System Technologies
The primary areas of emphasis within system technologies are system
design, development, and life cycle support which include requirements
analysis, system engineering and integration, test and evaluation, training
and documentation, and in-service engineering support.
Requirements analysis includes assessment of mission requirements,
systems performance criteria, specifications review and development, and
trade-off analysis to determine cost versus performance benefits.
System engineering and integration tasks typically include system
design; prototype development, including modeling and simulation;
acquisition support; reliability, maintainability, and availability trade-
offs; hardware and software systems development to support combat systems'
operability; and new technology planning and implementation.
As a part of test and evaluation, Company engineers and analysts are
involved in the design and development of laboratory and at-sea test
procedures to assess functional and operational performance at the
hardware, software, and integrated systems level. Duties include dockside
and at-sea test conduct, data acquisition, and performance analysis of test
data.
In-service engineering support addresses the life cycle maintenance
and support of deployed systems. Company engineers and technicians are
involved in equipment installation and check-out; configuration management;
integrated logistics support; system upgrades and modifications; systems'
grooming, repair, rebuilding and refurbishing at-sea, dockside, and at
Company facilities.
Company instructional designers and engineers support a broad range of
military training needs including training requirements analysis and
curricula development for enlisted and officer personnel addressing
maintenance, operability and tactics; training conducted ashore and at-sea;
and personnel performance evaluation and analysis.
Closely aligned to the Company's training tasks are the development
and revision of tactical documentation for the Navy's submarine, surface
ship, and air commands. Much of this work involves planning and evaluating
exercises at sea; deriving information on system, platform, and battle
group performance; and incorporating this information into applicable
tactical doctrine.
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Company engineers integrate COTS technology into naval systems,
controlling costs while improving system performance. These efforts include
COTS software applications development; hardware fabrication; and prototype
systems to support rapid COTS systems introduction to the fleet.
Information Technology
In the defense market, the Company provides information technology
products and services, largely for C(4)I (command, control, communications,
computers, and intelligence): the infrastructure of networks and data that
enables military personnel to make the best planning and combat decisions
possible. The Company's work involves software development,
telecommunications/networking, database systems, decision aids, COTS
product integration, training, simulation and modeling, data fusion,
imaging systems, fleet support, and acquisition management. The Company
assists commercial customers implementing groupware, networking, and
transaction processing solutions including work to provide network
integrity and data security.
Company engineers and programmers create real-time, object-oriented
applications software in an open architecture environment. They design and
develop software for the event-triggered computation and analysis of
mission-critical data. They also develop, integrate, document, and test
software and develop performance aids for government and commercial
clients. This software supports real-time data collection, performance
modeling, data analysis, and rapid decision making in areas where having
appropriate information is critical to success.
Communications and connectivity services involve distributing
real-time data across geographically dispersed sites to support rapid and
collaborative decision making. For example, Company-developed systems are
used to process satellite meteorological data with the primary goal of
forecasting weather systems that would adversely affect operations in and
around a conflict area.
In addition, Company-developed modeling and simulation are used to
train combatants prior to exposure to actual operational environments. The
training materials include three dimensional graphical images that run on
systems using COTS hardware and software.
Database management services are provided to support complex systems,
programs, and organizations for the Navy and commercial customers.
Computerized databases are developed to support data acquisition
strategies, risk analysis, decision making, and to fulfill executive
reporting requirements. They also support program planning and scheduling,
engineering change assessment and control, inventory control, equipment
maintenance, financial control and budget justification, and documentation
libraries.
The Company's IPD subsidiary is the largest provider of information
technology services within the Company.
TECHNOLOGY-BASED TRAINING SYSTEMS
The Company employs interactive multimedia technology in designing,
developing, and implementing technology-based training and delivery systems, and
performance support systems for commercial, civil government, and defense
customers. Interactive multimedia technology is computer-based and includes
computer-generated graphics and animation, full-motion video, and high-fidelity
audio. The Company's instructional design capability is utilized to ensure that
training materials developed will produce the desired learning result.
Instructional training and delivery systems employ interactive multimedia
technology in a stand-alone, networked, or Web-based systems environment. These
systems allow students to proceed at their own pace, at their own work site and,
in general, achieve training objectives more quickly than with non-interactive
forms of training. The Company develops applications software, computer-based
networks, and enterprise-wide data bases to meet customer training objectives.
Company employees are experienced in Web-based training, human factors
engineering, software engineering, graphic design, video production, distance
learning, and
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performance support systems. The Company's capabilities in database development
and networked communications are used in its Web-based training delivery work.
When developing performance support systems, the Company employs
interactive multimedia technology including interactive electronic documentation
to provide job aids, just-in-time training, and on-line reference materials.
Applications include engineering design, equipment maintenance, sales and
customer service, and systems operability support. Company training specialists
and engineers design, develop, and implement performance support systems for
both commercial and defense applications in order to improve productivity and
leverage work experience and system knowledge across the workforce.
The Company's Interactive Media subsidiary is the largest provider of
technology-based training development services in the Company.
Contracts
The Company generates a substantial amount of its revenue from contracts
with agencies of the U.S. Government (the "Government"). Government contracts
obtained by the Company are typically indefinite delivery/indefinite quantity
(ID/IQ) contracts, competitive in nature, are usually awarded on the basis of
price, technical capability and past performance, and may be awarded to more
than one company. ID/IQ contracts typically provide for a general range of tasks
to be performed over a number of years, have an absolute dollar ceiling, and
require the customer to issue delivery orders to provide funding for specific
statements of work. The customer has complete discretion to allocate the funds
among the range of contracted tasks. Other types of government contracts
generally cover specific services to be provided over a shorter period. These
contracts may require the periodic addition of funds, or the exercise of annual
options by the customer.
The Company's contracts with the Government typically are structured as one
of the following: (i) cost-reimbursement; (ii) time-and-materials; or (iii)
fixed-price.
Under cost-reimbursement contracts, the customer reimburses the Company for
contracted costs within cost categories permitted by Government regulations. The
Company is paid a fee in addition to its costs. Reimbursable costs include
direct labor and other direct costs, allocated overhead, and general and
administrative costs, but exclude interest expense, donations, and certain other
costs. Indirect costs are reimbursed at the lower of actual or estimated costs,
and if the Company revises its estimated costs, the revised cost estimates will
be applied prospectively to previously executed cost-reimbursement contracts.
The fee is either fixed at the time of award (fixed-fee), earned at a fixed
hourly rate as hours of service are provided (hourly-fee), or is awarded based
on performance, at the sole discretion of the Government (award-fee). The
majority of the Company's cost-reimbursement contracts are either
cost-plus-fixed-fee or cost-plus-hourly-fee contracts. The contracts may either
require completion of defined tasks or delivery of a specific number of hours of
service. The current trend continues to be to contracts of the latter type. The
total of the cost and the fee cannot exceed the ceiling set forth in the
contract. If a contracted task has not been completed or the specific number of
hours of service have not been delivered at the time the authorized cost is
expended, the Company may be required to complete the work and will be
reimbursed for the additional costs but will not receive an additional fee or
the fee may be prorated proportionately to the number of hours actually
provided. To date, the impact of such revisions has not been material.
Under time-and-materials contracts, the customer pays a fixed rate per hour
for a specified number of hours. These fixed rates are intended to cover salary
costs attributable to work performed on the contract and related indirect
expenses, as well as a fee. To the extent the Company's costs differ from those
assumed in the fixed rate, the Company may experience higher or lower profit
margins than anticipated, or may realize a loss. The Company is reimbursed
separately for other direct costs without any profit or fee.
Under fixed-price contracts, the customer pays a specific price for
services or products. The Company bears the risk that increased or unexpected
costs may reduce its profit or cause it to sustain a loss. Conversely, when
costs are lower than expected, the Company may realize additional profit.
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General Service Administration (GSA) contracts are emerging as an
alternative contracting method for the Company's government customers. GSA
schedules (sometimes referred to as Federal Supply Schedules or FSS) provide for
services to various government agencies using numerous company labor categories
with established hourly rates. These contracts provide for a wide array of
services, are open for the use by all federal agencies, and streamline the
ordering and contracting process. Typically, less time expires from client need
identification to contract performance when GSA contracts are used.
The revenue and earnings of the Company could be substantially affected by
changes in Government procurement or fiscal policies, by reductions in
Government expenditures for services or products provided by the Company, or by
organizational changes within the Government or Navy which impact the Company's
customer base. Additionally, procedural changes may impact the timing of the
receipt of contracts, related funding, and cash payments to the Company.
Government contracts are subject to termination at the convenience of the
Government or for default. If a Government contract were to be terminated for
convenience, the Company would be reimbursed for its allowable costs to the date
of termination and be paid a proportionate amount of the stipulated profits or
fees attributable to the work actually performed. During the entire history of
the Company, the Government has never terminated any of the Company's contracts
for default.
The books and records of the Company are subject to audit by the Defense
Contract Audit Agency ("DCAA"), which can result in adjustments to contract
costs and fees as well as penalties and interest costs. The Government retains a
portion of the fee earned by the Company until contract completion and audit by
the DCAA. (See Note 4 of "Notes to Consolidated Financial Statements" on page 25
of the Company's 1998 Annual Report to Shareholders.) Audits of the Company by
DCAA have been completed for all fiscal years through 1996 without material
adjustments. In the opinion of management, the audits for fiscal years 1997 and
1998 will not result in adjustments having a material adverse effect on the
Company's financial position or results of operations. However, no assurances
can be given that future material adjustments will not be required.
Products developed by the Company under Government contracts are the
property of the Government.
The Company's commercial contracts occur primarily in its Interactive Media
and IPD subsidiaries. These contracts typically are structured as
time-and-materials or fixed-price. Time-and-materials and fixed-price contracts
in the commercial environment are similar to those types of contracts with the
Government as described above. Most of the contracts of Interactive Media are
fixed price.
The following table gives the approximate percentages of the Company's
revenues realized from the three basic contract types during the periods
indicated for its continuing operations:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
MARCH 31,
--------------------
CONTRACT TYPE 1996 1997 1998
- ------------- ---- ---- ----
<S> <C> <C> <C>
Cost-Reimbursement...................................... 76% 80% 75%
Time-and-Materials...................................... 4% 5% 9%
Fixed-Price............................................. 20% 15% 16%
--- --- ---
Total Company................................. 100% 100% 100%
</TABLE>
The Company often commits to provide non-labor items such as purchased
materials, computer services, travel, and work subcontracted as part of its
contract services. Non-labor items as a percentage of revenue from continuing
operations in fiscal 1996, 1997, and 1998 were approximately 21.1%, 23.2%, and
23.6% respectively. The Company typically earns lower fees on non-labor items
than it does on labor services. The Company sometimes commits to subcontract a
portion of its work to other companies to obtain special services or materials
when the Company believes that such action will give it a competitive advantage.
Subcontract costs are included in the non-labor percentages provided above.
Subcontracting expenses as a percentage of revenue from continuing operations
were approximately 7.7%, 9.5%, and 9.9% in fiscal 1996, 1997, and 1998,
respectively. In addition, the Company receives subcontracts from other
companies on which
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it earns a fee comparable to a fee earned on work performed directly for the
Government. In fiscal 1996, 1997, and 1998, the Company received subcontracted
work from other companies for amounts representing approximately 10.4%, 14.0%,
and 17.8% of its revenue, respectively.
Revenue under cost-reimbursement, time-and-materials, and fixed-price
contracts, including applicable fee or profit, are recognized concurrently with
costs incurred thereunder. Certain amounts not yet billed to customers are
included in recognized revenues and in contract receivables on the balance
sheet. (See Note 4 of "Notes to Consolidated Financial Statements" on page 25 of
the Company's 1998 Annual Report to Shareholders.)
Backlog
The Company's total backlog represents the aggregate contract revenue
remaining to be earned by the Company at a given time over the life of its
contracts. When more than one company is awarded contracts for a given work
requirement, the Company includes in total backlog its estimate of the contract
revenue it expects to earn over the remaining life of the contract. Funded
backlog consists of the aggregate revenue remaining to be earned at a given time
under (a) contracts for which funding has been contractually committed to the
Company in writing by a procuring Government agency; (b) requests to the Company
from a procuring Government agency to commence work before execution of the
written authorization under which the work is to be done; and (c) contracts with
non-Government customers. Unfunded backlog is the difference between total
backlog and funded backlog.
Funding under the Company's contracts with the Government is dependent upon
congressional approval of program level funding and contracting agency approval
of the funding for the Company's work. There can be no assurance that any
program or contract will be funded in its entirety. During fiscal 1998, total
backlog varied between $461.7 million and $589.4 million. During the year, $50.7
million of backlog expired that was not funded. Backlog at March 31, 1998 was
$589.4 million, a 22.6% increase from $480.7 million a year ago. The funded and
unfunded backlog of the Company varies from time to time because delivery
orders, new contract awards, and extensions of existing contracts are executed
at various dates throughout the year with varying periods of performance. The
Company believes that year-to-year comparisons of backlog are not necessarily
indicative of any revenue trends but may be indicative of the Company's ability
to be competitive in its marketplaces.
For commercial contracts, total backlog and funded backlog are generally
the same, i.e., the contracts are usually fully funded.
The Company's total backlog at March 31, 1996, 1997 and 1998 was as
follows:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------------
1996 1997 1998
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Funded Backlog............................. $ 29,056 $ 40,701 $ 49,974
Unfunded Backlog........................... 429,711 440,022 539,427
-------- -------- --------
Total............................ $458,767 $480,723 $589,401
-------- -------- --------
</TABLE>
Substantially all of the funded backlog at March 31, 1998 is expected to be
expended by the end of the Government's current fiscal year on September 30,
1998.
Customers
The Navy is the Company's principal Engineering/IT customer, accounting for
approximately 80% of the Company's revenue. Within the Navy, the Company does
business with approximately 20 different contracting agencies; and in fiscal
1998, the Company had approximately 110 contracts with ceilings in excess of
$500,000. The Company provides its services and products to numerous Navy
customers including: (i) several Navy laboratories, such as the Naval Undersea
Warfare Center; Coastal Systems Station, Dahlgren Division, Naval Surface
Warfare Center; Carderock Division, Naval Surface Warfare Center; and the Naval
Research
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Laboratory, each of which performs research, development, and test and
evaluation functions; (ii) acquisition commands which are responsible for
procurement of ships, aircraft, weapons, major systems and equipment, such as
the Naval Sea Systems Command; and (iii) operational commands which operate and
maintain the ships, aircraft, weapons, and systems, such as Commander-in-Chief,
U.S. Atlantic Fleet; and Commander Submarine Force, Atlantic. The responsibility
for some new Navy system design, test, evaluation and installation work is
shifting from naval laboratories to prime contractors and fleet support
activities. The Company continues to perform much of its work for the
laboratories but supports prime contractors and fleet support activities as
well. The effect of this shift on the Company's future business cannot be
determined at this time.
Interactive Media is focused on providing technology-based training
services to commercial customers. Approximately 70% of its revenue is from these
customers. They tend to be Fortune 1000 companies primarily in
telecommunications, financial services, and pharmaceuticals. Companies which
retain Interactive Media to develop training systems include MCI, Ameritech,
GTE, Royal Bank of Canada, National City Bank, Smithkline Beecham, and Merck.
Interactive Media also has contracts with civil government and defense
customers. Principal civil government customers include the Office of Personnel
Management, the Internal Revenue Service and Veterans Benefits Administration.
Working through the Office of Personnel Management, the Company also provides
training services to other Government customers. Defense customers include some
of the same activities that are supported in the Company's Engineering/IT
business.
Sales and Marketing
In the Company's Engineering/IT business, marketing activities relating to
government contracts are conducted by the professional and technical staff
located in its various offices. This decentralized approach enables the
Company's customers to communicate directly with the employees of the Company
responsible for both sales and work performance and aids the Company in
maintaining an awareness of customer needs, developing new business
opportunities, and preparing project proposals. These marketing activities are
identified and coordinated through the Company's strategic planning process,
which includes the annual development and monthly update of operating plans for
each existing and prospective customer organization. In addition, for selected
high potential market areas, the Company designates strategic area leaders to
focus further its sales and marketing activities. The corporate marketing office
provides proposal development guidance, information systems, and training; data
on markets, competition, and internal capabilities; marketing literature; Web
site maintenance; and trade show coordination.
Within Interactive Media, groups are organized according to one or more
vertical markets such as telecommunications, pharmaceuticals and financial
services. This enables the Company to focus the industry content expertise of
its technical and marketing staffs on the specific training needs of its
customers. Interactive Media systems are sold via a ten to twelve person
national sales force organized to support both geographic regions and the
targeted vertical markets. Sales personnel tend to be senior personnel with the
capability to provide consultative and industry specific technical knowledge to
customers. Interactive Media's primary regional offices are located in the
Pittsburgh, Washington, DC, Orlando, San Francisco and Connecticut areas.
Competition
The Company's business is very competitive. In the defense market, there
are a substantial number of large, diversified companies with greater financial
resources and larger technical staffs than those of the Company that are capable
of rendering services similar to those offered by the Company. The in-house
capabilities of the Company's customers are also, in effect, in competition with
the Company since they may perform many of the types of services that might
otherwise be performed by the Company. In addition, there are many smaller
companies which have developed specialized capabilities who compete with the
Company for both Engineering/IT and technology-based training business. As the
markets in which the Company operates continue to mature, other companies
continue to be attracted to them.
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It is not possible to predict the future intensity of competition which the
Company will encounter as a result of changing economic or competitive
conditions, customer requirements, or technological developments. However, to
the extent that defense budgets are reduced, competition for remaining defense
business can be expected to increase. The principal competitive factors for the
Company's businesses are technical capability, price, quality of services and
products, responsiveness, record of delivering on time and within budget, and
reputation and familiarity of the Company and its personnel with customers.
While the Company's ability to compete in defense markets is not dependent on
intangible property rights such as proprietary processes, patents, or licenses,
these factors do affect its ability to compete in commercial areas.
Human Resources
The principal resource of the Company is its 1,606 full-time employees,
approximately 1,300 of whom are professional and technical personnel. Because
the Company is diversifying by transferring its core competencies to new
markets, the make-up of the professional and technical staff of the Company is
similar for Government and commercial work and includes engineers, scientists,
mathematicians, multimedia specialists, educators, analysts, and IT
professionals.
The Company has no collective bargaining units and considers its employee
relations to be excellent.
Government Requirements
The Company's ability to maintain its current base of defense and other
Government business is dependent on providing employees and facilities which
meet rigorous Government regulations. Each facility has a continuing program to
meet applicable Government time keeping, security, and other regulations and to
maintain employee awareness of the paramount need for compliance.
Cautionary Statement for Purposes of the Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995.
Except for historical matters, the matters discussed in this Form 10-K are
forward-looking statements. These statements are based on current expectations
but they involve risks and uncertainties that could cause actual results to
differ materially from those indicated in the forward-looking statements.
Statements relating to the Company's or management's intentions, hopes, beliefs,
expectations, or predictions of the future are forward-looking statements. The
Company wishes to caution readers that in addition to the important factors
described elsewhere in this Form 10-K, the factors listed below, among others,
sometimes have affected, and in the future could affect, the Company's actual
results and could cause the Company's actual consolidated results during fiscal
year 1998, and beyond, to differ materially from those contained in or indicated
by any forward-looking statements made by, or on behalf of, the Company. There
may be additional factors not enumerated which could have a similar impact,
including factors which affect business generally, such as economic conditions.
The factors identified elsewhere in this Form 10-K include but are not
limited to those described under the following headings in this Item 1: (a)
"Contracts," concerning the risks of engaging in the government contracting
business; (b) "Backlog," about the Company's dependence upon congressional and
contracting agency approvals; (c) "Customers," concerning the Company's
dependence on the Navy as the Company's principal customer; and (d)
"Competition," concerning the competitive nature of the Company's business.
Additional important factors include:
(a) Budget reductions and Navy program funding priorities: While
spending by the Navy, the Company's principal customer, is expected to be
level for several years, the Company continues to be susceptible to changes
in the Government's requirements and priorities. The Company's business can
be adversely affected by reductions in Department of Defense programs that
are important to the Company.
(b) Product development and acceptance: The development of new
customer-purchased products is complex and involves many risks. The
Company's results could be adversely affected by such factors as
development delays, increases in costs, and delays in customer purchases.
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(c) New ventures: The Company from time to time enters into new
ventures, including some with other companies. While the Company believes
that these new ventures are strategically important, there are substantial
uncertainties associated with the development of new services, products,
and technologies. Initial timetables for development and introduction of
products may not be achieved. Cost and performance targets may not be
feasible. External factors, such as development of competitive alternatives
or government regulation, may cause anticipated markets not to develop or
to evolve in unexpected directions.
(d) Acquisitions: The Company's strategic plan calls for acquisition
of companies in both its Engineering/IT and technology-based training
businesses. The Company's results could be adversely affected by problems
associated with the integration of the acquired businesses with the
Company.
Certain portions of the Company's 1998 Annual Report to Shareholders
including "Management's Discussion and Analysis of the Financial Condition and
Results of Operations" are incorporated by reference into this Form 10-K. There
are additional important factors included therein, including those on page 17
that sometimes have affected, and in the future could affect, the Company's
actual results and could cause the Company's actual consolidated results during
fiscal year 1999, and beyond, to differ materially from those expressed in any
forward-looking statement made by, or on behalf of, the Company.
ITEM 2. PROPERTIES
The Company owns its corporate office building complex on approximately 19
acres of land in North Stonington, Connecticut. The complex includes 60,330
square feet of office space. The Company also owns buildings in New London,
Connecticut which provide 50,220 square feet of office and shop space, and a
building in Butler, Pennsylvania which provides 53,000 square feet of office and
storage space. The Company presently leases to tenants approximately 23,000
square feet of its Butler office space and 20,000 square feet of its New London
office space.
The Company leases office, shop, or warehouse space in 32 locations in 14
states, Australia, and Canada totaling approximately 308,000 square feet.
Approximately 3,000 square feet of leased office space is subleased to third
parties. A summary of the Company's principal leases is as follows:
<TABLE>
<CAPTION>
SQUARE
LOCATION FOOTAGE LEASE EXPIRATION
- -------- ------- ----------------
<S> <C> <C> <C>
Chesapeake, VA Crossways Boulevard......................... 48,000 02/28/03
Middletown, RI One Corporate Place......................... 45,103 06/30/99
Arlington, VA Jefferson Davis Highway..................... 33,958 09/30/03
Rockville, MD Tower Oaks Boulevard........................ 19,164 12/31/01
San Diego, CA Camino Del Rio North........................ 16,468 08/31/99
McLean, VA Jones Branch Drive.......................... 15,779 10/31/01
</TABLE>
The Company believes its facilities and equipment are in good condition and
adequate for its current business needs. The Company has not experienced, and
does not anticipate experiencing, any difficulty in obtaining satisfactory
facilities.
For additional information on the Company's leases and rental expenses
thereunder, see Note 11 of "Notes to Consolidated Financial Statements" on page
30 of the Company's 1998 Annual Report to Shareholders.
ITEM 3. LEGAL PROCEEDINGS
The Company is not engaged in any legal proceeding which is material to the
business or financial condition of the Company nor is the property of the
Company subject to any such proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1998.
9
<PAGE> 11
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The names and ages of the executive officers of the Company as of June 5,
1998 are set forth below, together with the primary positions held by each such
person.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Gary P. Bennett............................ 56 Chairman of the Board of Directors,
President, and Chief Executive Officer
David M. Nolf.............................. 55 Executive Vice President, Chief Financial
and Administrative Officer, Secretary, and
Director
Jay W. Ryerson............................. 62 Executive Vice President and Chief
Operating Officer
Robert M. Gorman........................... 56 Executive Vice President and General
Manager of Engineering Technologies Group
James R. Lavoie............................ 51 Executive Vice President, General Manager
of Information Technologies Group, and
President of the Company's Integrated
Performance Decisions, Inc. subsidiary
Joseph M. Marino........................... 48 Executive Vice President, General Manager
of System Technologies Group, and Chairman
of the Company's Interactive Media Corp.
subsidiary
Richard P. Mitchell........................ 50 Senior Vice President, Human Resources
Stephen E. Johnston........................ 56 Senior Vice President, Planning, and
Corporate Manager of Finance and Management
Information Systems
Gerald Snyder.............................. 53 Senior Vice President and President of the
Company's Interactive Media Corp.
subsidiary
Susan C. Varnadoe.......................... 43 Executive Vice President, Acquisitions
V. Lehman Woods............................ 50 Senior Vice President, Contracts
</TABLE>
Officers of the Company serve until the annual Board of Directors meeting
following the Annual Meeting of shareholders or until their successors are
chosen and qualify, or until earlier resignation or removal.
Gary P. Bennett has been employed by the Company since 1972. He was elected
Chairman of the Board in February 1997, President in May 1991 and served as
Chief Operating Officer from 1984 until he was named Chief Executive Officer in
November 1992. He was an Executive Vice President from 1978 to 1991. Mr. Bennett
has been a Director of the Company since 1979.
David M. Nolf has been employed by the Company since 1971 and served as
Senior Vice President, Finance and Administration from 1979 until May 1985, when
he was elected to serve as Executive Vice President, Chief Financial and
Administrative Officer and Secretary. Mr. Nolf has been a Director of the
Company since 1976 and served as Chairman of the Board of Directors from 1978 to
May 1985.
Jay W. Ryerson has been employed by the Company since 1972. Mr. Ryerson
served as department manager from 1982 until he became division manager in 1985.
He became a sector manager and was elected a Vice President in 1987, a Senior
Vice President in 1989, and was elected Executive Vice President in 1992. In
November 1992 he became the Chief Operating Officer.
Robert M. Gorman joined the Company in 1989 as part of its acquisition of
Acoustics and Mechanics, Inc. Mr. Gorman became general manager of the Company's
Engineering Technologies Group upon its formation in 1992. He became a Vice
President when he joined the Company and was elected Senior Vice President in
1991. In May 1998 he was elected Executive Vice President.
James R. Lavoie has been employed by the Company since 1979. Mr. Lavoie
served as department manager from 1982 until his promotion to division manager
in 1985. He was elected Vice President and sector manager in 1987 and was
elected to Senior Vice President in 1993. He became the President of the
10
<PAGE> 12
Company's subsidiary, IPD when it was formed in 1993. He is also the general
manager of the Company's Information Technologies Group. In May 1998 he was
elected Executive Vice President.
Joseph M. Marino has been employed by the Company since 1980. Mr. Marino
served as a department manager from 1984 until 1987 when he became a division
manager. He was elected Vice President in 1991 and became an operations center
manager heading up the New England Operations Center in 1992. In 1994 he was
elected Senior Vice President. He is the general manager of the Company's System
Technologies Group and the Chairman of the Company's Interactive Media
subsidiary. In May 1998 he was elected Executive Vice President.
Richard P. Mitchell has been employed by the Company since 1982. Mr.
Mitchell served as a department manager from 1984 until 1989 when he became a
corporate administrator and cost center manager. He assumed responsibilities for
the Chesapeake division of the Company in 1990 and was named Vice President in
1991. In 1994 he was elected Senior Vice President. In 1995 he was assigned
responsibility for the Company's acquisition program. In May 1998 he was elected
Executive Vice President.
Stephen E. Johnston joined the Company in 1990 as Vice President, Human
Resources. In November 1996 he was elected Senior Vice President, Human
Resources.
Gerald Snyder has been employed by the Company since 1984. Mr. Snyder
served as Corporate Manager of Finance and Budgets from 1984 until he was
elected Vice President, Planning in 1987. In 1991 he was elected Senior Vice
President, Planning.
Susan C. Varnadoe has been employed by the Company since 1988. Ms. Varnadoe
became a department manager in 1993 and became President of the Company's
subsidiary, Interactive Media when it was formed in July 1997. In May 1998 she
was elected Senior Vice President of the Company.
V. Lehman Woods has been employed by the Company since 1977. Mr. Woods
served as a department manager from 1981 until he became Vice President,
Contracts in 1985. In 1991 he was elected Senior Vice President, Contracts.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Pursuant to General Instruction G to Form 10-K, the information required by
this Item is incorporated by reference to information set forth under Corporate
Information in the Company's 1998 Annual Report to Shareholders.
ITEM 6. SELECTED FINANCIAL DATA
Pursuant to General Instruction G to Form 10-K, the information required by
this Item is incorporated by reference to information set forth under Selected
Financial Data: A Five-Year Summary in the Company's 1998 Annual Report to
Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Pursuant to General Instruction G to Form 10-K, the information required by
this Item is incorporated by reference to information set forth under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Company's 1998 Annual Report to Shareholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
11
<PAGE> 13
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Pursuant to General Instruction G to Form 10-K, the information required by
this Item is incorporated by reference to information set forth in the
"Consolidated Financial Statements" and notes on pages 18 through 32 of the
Company's 1998 Annual Report to Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G to Form 10-K, the information required by
this Item with respect to directors is incorporated by reference to the
information set forth under Item 1. ELECTION OF DIRECTORS in the Company's Proxy
Statement for the Annual Meeting of Shareholders to be held on August 11, 1998.
Information concerning executive officers is set forth under Item 4A of this
Form 10-K pursuant to Instruction 3 to Item 401(b) of Regulation S-K.
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to General Instruction G to Form 10-K, the information required by
this Item is incorporated by reference to information set forth under the
following headings: Compensation of Executive Officers; Option/SAR Grants in
Last Fiscal Year; Aggregated Option Exercises in Last Fiscal Year and Fiscal
Year-End Option Values; Termination of Employment and Change in Control
Agreements; and Report of the Compensation Committee and the Stock Option
Committee on Executive Compensation in the Company's Proxy Statement for the
Annual Meeting of Shareholders to be held on August 11, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pursuant to General Instruction G to Form 10-K, the information required by
this Item is incorporated by reference to information set forth under Security
Ownership of Management and 5% Shareholders in the Company's Proxy Statement for
the Annual Meeting of shareholders to be held on August 11, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
12
<PAGE> 14
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE NUMBER
IN 1998
ANNUAL REPORT
-------------
<S> <C> <C>
(a) 1. Financial Statements........................................ 18-32
33
Independent Auditors' Report................................
18
Consolidated Balance Sheets as of March 31, 1998 and 1997...
19
Consolidated Statements of Earnings for Each of the Years in
the Three-Year Period Ended March 31, 1998..................
20
Consolidated Statements of Shareholders' Equity for Each of
the Years in the Three-Year Period Ended March 31, 1998.....
21
Consolidated Statements of Cash Flows for Each of the Years
in the Three-Year Period Ended March 31, 1998...............
22-32
Notes to Consolidated Financial Statements..................
(a) 2. Financial Statement Schedules
Not applicable.
(a) 3. Exhibits (* denotes filed herewith):
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <S> <C>
3(i) -- Restated Certificate of Incorporation (incorporated by
reference to Exhibit 3A to the Registrant's Report on Form
10-Q, File No. 0-14161, for the quarter ended September 30,
1990).
3(ii) -- By-laws, Amended and Restated to February 6, 1993
(incorporated by reference to Exhibit 3(ii) to the
Registrant's Report on Form 10-K, File No. 0-14161, for the
year ended March 31, 1993).
4A -- Specimen Certificate of Common Stock (incorporated by
reference to Exhibit 4A to Amendment No. 1 to the
Registrant's Registration Statement on Form S-1, No.
33-2314), Articles 6 and 7 of the Certificate of
Incorporation and Article II, Article III, Sections 3 to 6,
Article VI, and Article VIII of the By-laws (included in
Exhibits 3(i) and 3(ii), respectively).
4B -- Amended and Restated Revolving Credit and Term Loan
Agreement between Analysis & Technology, Inc. and Shawmut
Bank Connecticut, National Association, formerly known as
The Connecticut National Bank, dated as of November 15, 1993
(incorporated by reference to Exhibit 4B to the Registrant's
Report on Form 10-K, File No. 0-14161 for the year ended
March 31, 1994).
4C -- First Amendment to the Revolving Credit and Term Loan
Agreement between Analysis & Technology, Inc. and Shawmut
Bank Connecticut, National Association formerly known as The
Connecticut National Bank, dated December 9, 1994
(incorporated by reference to Exhibit 4A to the Registrant's
Report on Form 10-Q, File No. 0-14161 for the quarter ended
December 31, 1994).
4D -- Second Amendment to Revolving Credit and Term Loan Agreement
and Revolving Credit Note between Analysis & Technology,
Inc. and Fleet National Bank of Connecticut, formerly known
as Shawmut Bank Connecticut, National Association, dated
November 29, 1995 (incorporated by reference to Exhibit 4 to
the Registrant's Report on Form 10-Q, File No. 0-14161 for
quarter ended December 31, 1995).
</TABLE>
13
<PAGE> 15
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <S> <C>
4E -- Third Amendment to Revolving Credit and Term Loan Agreement
and Revolving Credit Note between Analysis & Technology,
Inc. and Fleet National Bank of Connecticut, formerly known
as Shawmut Bank Connecticut, National Association, dated
November 13, 1996 (incorporated by reference to Exhibit 4 to
the Registrant's Report on Form 10-Q, File No. 0-14161 for
quarter ended December 31, 1996).
4F -- Fourth Amendment to Revolving Credit and Term Loan Agreement
and Revolving Credit Note between Analysis & Technology,
Inc. and Fleet National Bank of Connecticut, formerly known
as Shawmut Bank Connecticut, National Association dated
December 17, 1997 (incorporated by reference to Exhibit 4 to
the Registrant's Report on Form 10-Q, File No. 0-14161 for
quarter ended December 31, 1997).
4G -- Open-End Mortgage Deed and Security Agreement, dated
November 25, 1987, and related documents between Analysis &
Technology, Inc. and The Connecticut National Bank.
4H(1) -- Open-End Mortgage Deed and Security Agreement, dated May 30,
1986, and related documents between Analysis & Technology,
Inc. and The Connecticut National Bank.
4I(1) -- Open-End Mortgage, dated March 8, 1978, and related
documents of Analysis & Technology, Inc. to Groton Savings
Bank.
4J(1) -- Notes payable, due in monthly installments, with various
interest rates and maturity dates, secured by equipment.
10A -- Analysis & Technology, Inc. 1986 Stock Option Plan, as
amended (incorporated by reference to Exhibit 28 of the
Registrant's Registration Statement on Form S-8, No.
33-17313).
10B -- Analysis & Technology, Inc. 1987 Stock Option Plan
(incorporated by reference to Exhibit A to Proxy Statement,
dated July 6, 1987 of Analysis & Technology, Inc.).
10C -- Analysis & Technology, Inc. 1988 Stock Option Plan
(incorporated by reference to Exhibit A to Proxy Statement
dated July 1, 1988 of Analysis & Technology, Inc.).
10D -- Analysis & Technology, Inc. 1989 Stock Option Plan
(incorporated by reference to Exhibit A to the Proxy
Statement dated July 3, 1989 of Analysis & Technology,
Inc.).
10E -- Analysis & Technology, Inc. 1990 Stock Option Plan
(incorporated by reference to Exhibit B to the Proxy
Statement dated July 3, 1990 of Analysis & Technology,
Inc.).
10F -- Analysis & Technology, Inc. 1992 Stock Option Plan
(incorporated by reference to Exhibit A to Proxy Statement
dated July 7, 1992 of Analysis & Technology, Inc.).
10G -- Analysis & Technology, Inc. 1994 Stock Option Plan
(incorporated by reference to Exhibit A to Proxy Statement
dated July 8, 1994 of Analysis & Technology, Inc.).
10H -- Analysis & Technology, Inc. 1995 Stock Option Plan.
(incorporated by reference to Exhibit A to Proxy Statement
dated July 7, 1995 of Analysis & Technology, Inc.).
10I -- Analysis & Technology, Inc. 1997 Stock Option Plan.
(incorporated by reference to Exhibit A to Proxy Statement
dated July 1, 1997 of Analysis & Technology, Inc.).
10J -- Analysis & Technology, Inc. 1998 Stock Option Plan.
(incorporated by reference to Exhibit A to Proxy Statement
dated July 1, 1998 of Analysis & Technology, Inc.).
10K -- Amendments, dated June 30, 1989, to the Analysis &
Technology, Inc. 1986 Stock Option Plan (incorporated by
reference to Exhibit 19 to the Registrant's Report on Form
10-Q, File No. 0-14161, for the quarter ended June 30,
1989).
10L -- Amendment, dated June 30, 1989, to the Analysis &
Technology, Inc. 1987 Stock Option Plan (incorporated by
reference to Exhibit 19H to the Registrant's Report on Form
10-Q, File No. 0-14161, for the quarter ended June 30,
1989).
</TABLE>
14
<PAGE> 16
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <S> <C>
10M -- Amendment, dated June 30, 1989, to the Analysis &
Technology, Inc. 1988 Stock Option Plan (incorporated by
reference to Exhibit 19I to the Registrant's Report on Form
10-Q, File No. 0-14161, for the quarter ended June 30,
1989).
10N -- Amendments, dated May 17, 1997, to the Analysis &
Technology, Inc. 1983, 1984, 1985, and 1986 Stock Option
Plans (incorporated by reference to Exhibit 10A to the
Registrant's Report on Form 10-Q, File No. 0-14161, for the
quarter ended June 30, 1997).
10O -- Amendments, dated May 17, 1997, to the Analysis &
Technology, Inc. 1987, 1988, 1989, 1990 and 1992 Stock
Option Plans (incorporated by reference to Exhibit 10B to
the Registrant's Report on Form 10-Q, File No. 0-14161, for
the quarter ended June 30, 1997).
10P -- Amendments, dated May 17, 1997, to the Analysis &
Technology, Inc. 1994 and 1995 Stock Option Plans
(incorporated by reference to Exhibit 10C to the
Registrant's Report on Form 10-Q, File No. 0-14161, for the
quarter ended June 30, 1997).
10Q -- Amendment, dated May 17, 1997, to the Analysis & Technology,
Inc. Savings & Investment Plan, effective May 17, 1997
(incorporated by reference to Exhibit 10D to the
Registrant's Report on Form 10-Q, File No. 0-14161, for the
quarter ended June 30, 1997).
10R -- Amendment, dated August 12, 1996, to the Analysis &
Technology, Inc. Savings & Investment Plan effective October
1, 1996 (incorporated by reference to Exhibit 10 of the
Registrant's Report on Form 10-Q, File No. 0-14161 for the
quarter ended September 30, 1996).
10S -- Amendment dated December 4, 1995, to the Analysis &
Technology, Inc. Savings & Investment Plan effective
December 4, 1995, (incorporated by reference to Exhibit 10
of the Registrant's Report on Form 10-Q, File No. 0-14161,
for the quarter ended December 31, 1995).
10T -- Amendment dated September 9, 1995, to the Analysis &
Technology, Inc. Savings & Investment Plan effective
September 30, 1995 (incorporated by reference to Exhibit 10
of the Registrant's Report on Form 10-Q, File No. 0-14161
for the quarter ended September 30, 1995).
10U -- Amendment dated December 1, 1994, to the Analysis &
Technology, Inc. Savings & Investment Plan effective January
1, 1995 (incorporated by reference to Exhibit 10 of the
Registrant's Report on Form 10-Q, File No. 0-14161, for the
quarter ended December 31, 1994).
10V -- Amended and Restated Analysis & Technology, Inc. Savings &
Investment Plan effective August 10, 1993 (incorporated by
reference to Exhibit 3(ii) of the Registrant's Report on
Form 10-K, File No. 0-14161, for the year ended March 31,
1994).
10W -- Amended and Restated Analysis & Technology, Inc. Savings &
Investment Plan Effective May 17, 1997 (incorporated by
reference to Exhibit 10D of the Registrant's Report on Form
10-Q, File No. 0-14161 for the quarter ended June 30, 1997).
10X -- Amended and Restated Analysis & Technology, Inc. Employee
Stock Ownership Plan dated November 21, 1994, effective
January 1, 1994.
10Y -- Analysis & Technology, Inc. Performance Incentive
Compensation Plan dated September 19, 1991 (incorporated by
reference to Exhibit 19B of the Registrant's Report on Form
10-Q, File No. 0-14161, for the quarter ended September 30,
1991).
10Z -- Amendment, dated May 17, 1997, to the Analysis & Technology,
Inc. Deferred Compensation Plan effective May 17, 1997
(incorporated by reference to Exhibit 10E on Form 10-Q, File
No. 0-14161, for the quarter ended June 30, 1997).
10aa -- Amended and Restated Analysis & Technology., Inc. Deferred
Compensation Plan effective June 5, 1996 (incorporated by
reference to Exhibit 99A to the Registrant's Registration
Statement on Form S-8, No. 333-05267).
</TABLE>
15
<PAGE> 17
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <S> <C>
10bb -- Analysis & Technology, Inc. 401(k) Restitution Plan, dated
August 8, 1994, effective April 1, 1994.
10cc -- Analysis & Technology, Inc. Form of Change in Control
Agreement, dated March 6, 1997 (incorporated by reference to
Exhibit 10V of the Registrant's Report on Form 10-Q, File
No. 0-14161 for the fiscal year ended March 31, 1997).
10dd -- Analysis & Technology, Inc. Form of Indemnification
agreement, dated May 17, 1997 (incorporated by reference to
Exhibit 10F of the Registrant's Report on Form 10-Q, File
No. 0-14161 for the quarter ended June 30, 1997.
10ee -- Group Medical Reimbursement Insurance for Officers
(incorporated by reference to Exhibit 10J of Amendment No. 1
to the Registrant's Registration Statement on Form S-1, No.
33-2314).
10ff -- Analysis & Technology, Inc. Managers' Benefit Options Plan
(incorporated by reference to Exhibit 10J of the
Registrant's Report on Form 10-Q, File No. 0-14161, for the
quarter ended December 31, 1986).
10gg -- Analysis & Technology, Inc. Officers' Benefit Options Plan
(incorporated by reference to Exhibit 10L of the
Registrant's Report on Form 10-K, File No. 0-14161, for the
year ended March 31, 1989).
10hh -- Stock Purchase Agreement, dated June 1, 1989, among Analysis
& Technology, Inc., Applied Science Associates, Inc. and the
Sellers (as defined therein) (incorporated by reference to
Exhibit 2.1 on the Registrant's Report on Form 8-K, File No.
0-14161, dated June 1, 1989).
10ii -- Stock Purchase Agreement dated October 31, 1995, among
Analysis & Technology, Inc., General Systems Solutions, Inc.
and the Buyers (as defined therein) (incorporated by
reference to Item 2 on the Registrant's Report on Form 8-K,
File No. 0-14161, dated October 31, 1995).
10jj -- Stock Purchase Agreement dated July 26, 1996, among Analysis
& Technology, Inc., Vector Research Company, Inc. and the
Sellers (as defined therein) (incorporated by reference to
Exhibit 2 on Form 8-K, file No. 0-14161 dated July 29,
1996).
10kk -- Stock Purchase Agreement dated November 14, 1997, among
Analysis & Technology, Inc., UP, Inc. and the Sellers (as
defined therein) (incorporated by reference to Exhibit 10 on
Form 8-K, File No. 0-14161 dated November 25, 1997).
11* -- Earnings per share calculation.
13* -- Analysis & Technology, Inc. 1998 Annual Report to
Shareholders (incorporated portions).
21* -- List of Subsidiaries of Analysis & Technology, Inc.
23* -- Consent of KPMG Peat Marwick LLP with respect to the
incorporation by reference of its report dated May 1, 1998.
27* -- Financial Data Schedule.
</TABLE>
- ---------------
(1) Copies of these documents are not being filed as exhibits, since the
indebtedness represented thereby does not exceed 10% of the total assets of
the Company. The Company agrees to provide copies of these documents to the
Securities and Exchange Commission upon request.
16
<PAGE> 18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Analysis & Technology, Inc.
By: /s/ GARY P. BENNETT
------------------------------------
Gary P. Bennett
President and Chief Executive
Officer
Date: June 24, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dated indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ GARY P. BENNETT President, Chief Executive Officer and June 24, 1998
- --------------------------------------------- Chairman of the Board (Principal
Gary P. Bennett Executive Officer)
/s/ DAVID M. NOLF Executive Vice President, Chief June 24, 1998
- --------------------------------------------- Financial and Admin- istrative
David M. Nolf Officer and Director
/s/ LARRY M. FOX Vice Chairman June 24, 1998
- ---------------------------------------------
Larry M. Fox
/s/ JAMES B. FOX Director June 24, 1998
- ---------------------------------------------
James B. Fox
/s/ NELDA S. NARDONE Director June 24, 1998
- ---------------------------------------------
Nelda S. Nardone
/s/ THURMAN F. NAYLOR Director June 24, 1998
- ---------------------------------------------
Thurman F. Naylor
/s/ DENNIS G. PUNCHES Director June 24, 1998
- ---------------------------------------------
Dennis G. Punches
</TABLE>
17
<PAGE> 1
Exhibit 11
ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES
Computation of Earnings per Share
For the years ended March 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
Basic: 1998 1997 1996
- ------ ---- ---- ----
<S> <C> <C> <C>
Weighted average shares
outstanding 3,530,006 3,499,742 3,623,955
========= ========= =========
Net Earnings $4,191,564 $3,375,536 $2,077,621
========== ========== ==========
Basic earnings per common share $1.19 $0.96 $0.57
===== ===== =====
Diluted:
- --------
Weighted average shares
outstanding 3,530,006 3,499,742 3,623,355
Net effect of dilutive stock
options based on the
treasury stock method using
the average market price 319,635 109,468 116,672
---------- ---------- ----------
Total 3,849,641 3,609,210 3,740,027
========== ========== ==========
Net earnings $4,191,564 $3,375,536 $2,077,621
Net effect of earnings
attributable to subsidiary
stock options (85,050) (33,407) -
---------- ---------- ----------
Net earnings available to
common shareholders $4,106,514 $3,342,129 $2,077,621
========== ========== ==========
Diluted earnings per common
and common equivalent share $1.07 $0.93 $0.56
===== ===== =====
</TABLE>
<PAGE> 1
Exhibit 13
[LOGO A&T] 1998 Annual Report Analysis & Technology
A FOCUSED VISION
<PAGE> 2
COMPANY PROFILE
Analysis & Technology creates technology-based solutions through engineering and
information technologies. Our subsidiary, Interactive Media Corp. creates
technology- and Web-based training using leading-edge multimedia technologies.
ENGINEERING AND INFORMATION TECHNOLOGIES
We design, develop, and prototype mission-critical electronic systems for ships
and aircraft, incorporating commercial off-the-shelf (COTS) technology. We also
work with clients to provide ship engineering services, including vibration
control, applied mechanics, materials and composites analysis, and naval
architecture.
Analysis & Technology integrates the latest advances in voice,
data, and image processing and communications technologies with object-oriented
applications, management of dynamic data, and data fusion methodologies. We
enable clients to reach better decisions through sophisticated technology and
through human factors engineering.
TECHNOLOGY-BASED TRAINING
Interactive Media Corp. combines proven instructional techniques with multimedia
content and Web-based delivery to improve organizational performance. Our
consultants coordinate a diverse spectrum of disciplines - software engineering,
instructional design, human factors engineering, graphic design, and video
production - to assure that client training objectives are met.
VISIT US ON THE INTERNET AT HTTP://WWW.AATI.COM
Analysis & Technology was awarded a record $345.6 million in new contracts
during fiscal 1998.
Interactive Media Corp. increased its commercial revenue 59% over the prior
year.
CONTENTS
2 Letter to Shareholders
5 Operations Overview
13 Financial Information
34 Directors and Officers
35 Corporate Information
<PAGE> 3
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Amounts in millions except per share data
Year ended March 31, 1998 1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue from continuing operations $ 160.0 $ 142.5 $ 122.9
Net earnings from continuing operations $ 4.2 $ 3.4 $ 3.2*
Weighted average shares outstanding
Basic 3.53 3.50 3.62
Diluted 3.85 3.61 3.74
Earnings per share from continuing operations
Basic $ 1.19 $ 0.96 $ 0.88*
Diluted $ 1.07 $ 0.93 $ 0.85*
Dividend $ 0.21 $ 0.20 $ 0.18
Dividend yield 1.0% 2.0% 2.0%
P/E ratio 19.2 10.5 10.4
Debt/equity ratio 5.6% 7.0% 7.8%
Shareholders' equity $ 44.3 $ 40.0 $ 39.3
</TABLE>
*without R&D tax credit
Revenue up 12% over prior year
Net Earnings up 24% over fiscal 97
Earnings per share up 15%
Analysis & Technology's common stock is currently traded on the NASDAQ National
Market under the symbol AATI. The high and low sale prices of the Company's
common stock for each quarter from April 1, 1996 through March 31, 1998 are
listed to the right. Dates shown indicate the end of the quarter.
During fiscal 1998, the Company's Board of Directors approved a 3-for-2 stock
split which was distributed in the form of a stock dividend on January 29, 1998
to shareholders of record as of January 2, 1998. On May 27, 1998, there were
approximately 310 shareholders of record and 3,669,239 shares of common stock
outstanding.
Also during fiscal year 1998, the Company declared an annual cash dividend of
$0.21 per share, payable on April 17, 1998, to shareholders of record as of
March 31, 1998. The annual cash dividend for the fiscal year ended March 31,
1997 was $0.20 per share.
[GRAPHIC]
1
<PAGE> 4
TO OUR SHAREHOLDERS
A Focused Vision
Fiscal 1998 was an extraordinary year for Analysis & Technology, and our many
accomplishments indicate that our strategies to grow the Company and increase
shareholder value are right on track. Our financial results were strong,
including a 24% increase in net earnings, a 12% rise in revenue, and improved
operating margins, which grew from 4.7% to 5.0%. Building our technology-based
training subsidiary, Interactive Media Corp., was a key strategic goal for the
year, and we achieved substantial progress, including a 59% increase in
commercial revenue. In fiscal 1998, we were also awarded a record number of new
contracts and completed five acquisitions.
These accomplishments were consistent with our vision to build our core
engineering and information technologies business with the Department of Defense
while developing our technology-based training business in new government and
commercial markets. Commercial technology-based training offers us the
opportunity for operating margins of approximately twice our core
engineering/information technology business.
Net earnings for fiscal 1998 were $4.2 million compared to $3.4 million for the
prior year. Diluted earnings per share increased 15% to $1.07 from $0.93 a year
ago, while basic earnings per share increased 24% to $1.19 from $0.96. Fiscal
1998 revenue rose 12% to $160.0 million compared to $142.5 million in the
previous fiscal year. The recent year's results include a non-recurring
after-tax gain of approximately $87 thousand.
We achieved improved margins in both our core engineering/information
technologies business and in our technology-based training subsidiary through
improved cost controls, and are very satisfied with our business momentum
entering fiscal 1999.
<PAGE> 5
OUR VISION TO GROW ANALYSIS & TECHNOLOGY IS FOCUSED ON PROVIDING NETWORK-CENTRIC
TECHNOLOGY SOLUTIONS FOR CLIENTS IN BOTH OUR CORE ENGINEERING/IT AND
TECHNOLOGY-BASED TRAINING BUSINESSES.
Engineering/Information Technologies
In our engineering/information technologies (IT) business, fiscal 1998 was a
record year for new contract awards, which amounted to $345.6 million. Changes
to our bidding and proposal writing activities were key to this success, and we
remain pleased with the distribution of our contracts within the U.S. Navy.
Major customers include the Naval Undersea Warfare Center, Naval Surface Warfare
Center, Navy systems commands, and foreign military sales. Contractual backlog
at the close of fiscal 1998 was $589 million, up 23% over the prior year.
Strategic acquisitions contributed to the 11% revenue growth in our
engineering/IT business. In October, we acquired Command Control, Inc., a
leading provider of information technology and command, control, computers,
communications, and intelligence (C(4)I) services to the U.S. Army. The addition
of Cambridge Acoustical Associates, which we acquired in February 1998, enhances
our ability to handle the sophisticated ship engineering design work required by
many of our defense customers, and is important to our participation in the New
Attack Submarine program. The integration of both companies is moving ahead on
schedule.
Antisubmarine warfare is receiving increased attention by Department of the Navy
planners. During fiscal 1998, we strengthened our Navy antisubmarine warfare
capability by hiring retired Vice Admiral Jim Fitzgerald, formerly of
Lockheed-Martin, to head up our antisubmarine warfare-C(4)I efforts. We are
pleased to have Jim on board.
While the overall Department of Defense budget is projected to be stable, growth
opportunities are expected to continue in areas where we can apply our system
integration and software engineering abilities, including C(4)I, antisubmarine
warfare, advanced training opportunities, mine warfare, field service
engineering, and commercial off-the-shelf (COTS) products insertion.
Specifically, we are pursuing opportunities in the New Attack Submarine, Surface
Combatant-21 (SC-21), and Information Technology for the 21st Century (IT-21)
programs.
Technology-based Training
In fiscal 1998, we created a subsidiary focused on technology-based training by
combining several of our existing organizational units. To optimize marketing
opportunities in the commercial sector, we created a separate corporate identity
for the new subsidiary and named it Interactive Media Corp. Susan Varnadoe, who
has played a significant role in building this business for the Company, was
named President of the subsidiary.
Interactive Media progressed well in fiscal 1998. Sales to commercial clients
grew 59% to $14.7 million. Interactive Media's team has continued to strengthen
its sales staff, and we now have a base of more than 100 commercial customers
that includes MCI, Ameritech, GTE, Royal Bank of Canada, National City Bank,
Merck, and SmithKline Beecham.
The acquisition of two companies -- UP, Inc. and Interactive Media Solutions --
contributed to the strong growth this year. We are pleased that key executives
from both UP and IMS have remained with us to help build our technology-based
training business. In addition, we have recently promoted the managers of
Interactive Media's Northeast and Southeast regions to the position of Vice
President, where they will have the opportunity to build upon the strong
contributions they have already made to the subsidiary's growth.
During the year, Interactive Media won a five-year multiple award contract from
the Internal Revenue Service which has a potential value of $55 million. We look
forward to supporting the IRS's training and skill assessment efforts using
distance learning and computer-based training technologies.
3
<PAGE> 6
Looking ahead, Analysis & Technology is well positioned to benefit from the
growing demand for Web-based training. We are confident that our approach to
training is an important addition to the mix of products and services we offer
our customers. We will continue to pursue new contracts with leading
telecommunications and financial services companies.
ISO 9001 Registration
Just subsequent to the close of fiscal 1998, Analysis & Technology achieved ISO
9001 corporate registration for its quality systems, a distinction that reflects
the dedication of our people who have worked hard and long to bring our quality
program to this level. The quality systems at several of our locations were ISO
9001 registered prior to this event. Our Company intranet has proved a valuable
asset to corporate-wide registration, making the quality infrastructure easily
available to all of our field locations. ISO 9001 registration is a critical
competitive factor, and an important requirement for the success of our strategy
for growth.
Shareholder Value Initiatives
Early in fiscal 1998, the Board of Directors voted to expand our share
repurchase program. In addition, we completed a three-for-two stock split in
January 1998, distributed in the form of a stock dividend. The Company also
increased the annual cash dividend to $0.21 per share from $0.20 for the prior
year. Analysis & Technology has increased its annual cash dividend without
interruption since 1972.
Outlook
We believe that the strong results we achieved in fiscal 1998 have established a
basis for continued success in fiscal 1999. We continue to be optimistic about
the prospects for our core engineering/IT and technology-based training
businesses, and we will remain focused on improving margins in both segments.
As we look ahead, our strategic vision remains unchanged. We plan to continue to
grow through internal efforts and by pursuing non-dilutive acquisitions of
companies that complement our existing businesses.
We feel confident in the strength of our business in fiscal 1999 and beyond: we
continue to have a strong position in growing high-priority Department of
Defense programs and the market for technology-based training continues to grow
rapidly, according to leading market researchers.
Our staff has worked hard to remain focused on our customers, and to develop new
customer relationships. I am confident in the ability of our people to continue
the level of excellence that has enabled us to achieve such strong results. We
remain dedicated to building shareholder value through our strategic choices.
I look forward to reporting on our further progress to you throughout the year.
We appreciate your interest and your ownership in Analysis & Technology.
/s/Gary P. Bennett
- ------------------
Gary P. Bennett
Chairman, President, and Chief Executive Officer
4
<PAGE> 7
ENGINEERING AND INFORMATION TECHNOLOGIES
THE TECHNOLOGY OF OUR BUSINESS CHANGES RAPIDLY. NETWORK-CENTRIC INFORMATION
TECHNOLOGY IS INCREASINGLY IMPORTANT TO BOTH OF OUR STRATEGIC BUSINESS AREAS.
BUT OUR TRADITION OF CUSTOMER FOCUS REMAINS UNCHANGED AND CRITICAL TO OUR ROLE
AS A LEADER IN TECHNOLOGY SOLUTIONS.
[TECHNOLOGY-BASED TRAINING SYSTEMS LOGO]
<PAGE> 8
ENGINEERING AND INFORMATION TECHNOLOGIES
COMMERCIAL OFF-THE-SHELF TECHNOLOGY
Acquisition reform has driven the trend to deploy commercially available system
components and equipment in Department of Defense systems. Analysis & Technology
was an early enabler of commercial off-the-shelf (COTS) technology in U.S. Navy
ship-board systems, and has in-house the precision machining, metal and
electronics fabrication, software development tools, and engineering
capabilities required to deploy a broad range of COTS-based prototypes.
NEW ATTACK SUBMARINE
Analysis & Technology is an acknowledged leader in undersea and antisubmarine
warfare, and is becoming a key contributor to the Navy's next generation of sub,
the New Attack Submarine (NSSN). We work with system commands, laboratories, the
fleet, and prime contractors, to develop, introduce, and maintain systems to
assure U.S. superiority in undersea warfare.
MINE WARFARE
The U.S. Navy is devoting substantial resources to the development of offensive
and defensive mine warfare capability, since mining is considered a primary
force multiplier in regional conflicts. Analysis & Technology provides products
and services in a variety of mine warfare projects, including airborne laser
mine detection systems, mine hunting sonar improvements, advanced mine sweeping
systems development, and critical education and training programs.
SYSTEMS INTEGRATION SOLUTIONS PROTOTYPING ACOUSTICS
<PAGE> 9
Analysis & Technology provides critical engineering and information technology
solutions to both government and commercial clients. The key to our success has
been our ability to build customer loyalty and leverage high-end technologies to
improve system performance and control costs.
The U.S. Department of Defense represents a major market for these services. Our
strategy for this market is focused on high-priority programs and functions that
play to Analysis & Technology's core competencies. They are C(4)I, antisubmarine
and undersea warfare, training, mine warfare, field service engineering, and
commercial off-the-shelf technology (COTS) insertion, where we can apply our
system integration and software engineering abilities. The key Navy programs we
have targeted are the New Attack Submarine (NSSN), Surface Combatant (SC-21),
and the Information Technology for the 21st Century initiative, known as IT-21.
Through aggressive pricing, recruiting key personnel, and making strategic
acquisitions, we have increased our revenue from the Navy and achieved initial
market penetration within the U.S. Army. Through extensive quality audit and
review, we've achieved corporate-wide ISO 9001 registration, a critical
competitive credential for expanding work with the Department of Defense.
Through disciplined cost controls, we have also improved operating margins in
this competitive business.
Several market trends favor Analysis & Technology as we pursue our strategies in
this market. The Department of Defense budget is stable in the $250 billion
range. Although the Navy budget has stabilized at around $78 billion (in
constant dollars), according to Jane's Information Group, significant changes
are occurring due to acquisition reform and shifting strategic priorities.
Acquisition reform is realigning former competitors into partners and has driven
the trend to infuse COTS technology into Department of Defense systems faster
and more cost effectively. The Navy is seeking to redirect funding from
shoreside infrastructure to warfighter systems and platforms, and to do more
outsourcing. Computer and communications technology is growing in importance as
the Navy seeks to use information superiority to increase combat power and
improve battle management. Ship and shoreside systems are increasingly
network-centric, with worldwide communications capabilities a basic requirement.
Analysis & Technology is well positioned to benefit from this shift.
SYSTEM AND ENGINEERING TECHNOLOGIES
Our full spectrum system integration and engineering capabilities include ship
design, electronic system design for ships and aircraft, and weapons system
analysis and development. Analysis & Technology employs a broad array of
critical technologies and related acquisition management activities in support
of its customers. Our system engineers begin with defining system requirements
and then develop a complete solution that works seamlessly with other ship
systems.
We are supporting the Navy's emphasis on fielding specific engineering solutions
to existing fleet problems, rather than on extensive theoretical studies. Our
systems design/ integration and prototype skills align with this emphasis, as
does the Company's extensive experience with integrating cost effective COTS
products. We develop prototype system solutions -- from algorithm design to
software integration to fabrication to installation to life cycle support,
including operating guidelines.
In addition, our in-house fabrication facilities, which can accommodate limited
production runs of prototype systems, enable us to capitalize on projected
growth in the Navy's procurement budget.
Analysis & Technology's ship engineering skills include noise and vibration
control, materials and composites analysis, and naval architecture and marine
engineering. We enjoy technical leadership in this area, and are recognized by
Navy agencies, ship builders, and combat system prime contractors for our
comprehensive ship engineering services. (continued)
<PAGE> 10
During fiscal 1998, we acquired Cambridge Acoustical Associates, Inc. which
further deepened Analysis & Technology's expertise in the areas of dynamics of
submerged structures, radiated noise analysis, and passive and active noise
control. The firm's clients include Johns Hopkins University/Applied Physics
Laboratory and the Naval Surface Warfare Center.
The Company's leadership was evident in fiscal 1998 with the winning of several
key contracts, including the following (amounts presented are the contracts'
potential values over five years):
- - $34.6 million multiple award with the Fleet Technical Support Center,
Norfolk, to provide installation, maintenance, repair, and overhaul of
surface ship undersea warfare systems;
- - $25 million with the Naval Surface Warfare Center, Carderock Division,
for combat systems in-service engineering for submarines, surface
ships, and shore-side installations; and
- - $22.6 million, also with the Naval Surface Warfare Center, for
innovative engineering and prototype system development for advanced
acoustic signature reduction projects.
INFORMATION TECHNOLOGIES
The Department of Defense is creating a network-centric infrastructure for
command, control, communications, computers, and intelligence (C(4)I) that will
provide force commanders critical, real-time information to support planning and
combat decisions. Our early start in the development of object-oriented programs
has enabled us to build an extensive library of object code, which cuts
development time for new systems initiatives. We help our customers improve the
capability, responsiveness, and reliability of their C(4)I systems, and plan to
grow by leveraging our involvement in joint initiatives in this field.
The estimated size of the market for the information technologies, information
warfare, and security systems that support C(4)I is as high as $40 billion,
according to Command and Control Consulting, Inc. This area is expected to
receive increased funding as the Department of Defense evolves the complex
network configurations that allow force commanders to visualize the entire field
of battle.
The Navy's Information Technology for the 21st Century (IT-21) initiative will
provide the infrastructure for C(4)I systems and communications. We feel the
Navy will make significant near-term investment to build the new architecture to
support C(4)I -- upgrading the communications backbone of wideband radio,
terrestrial fiber, and local area networks. We believe Analysis & Technology's
technical strengths qualify us for increased involvement in several areas of
this effort:
- - implementation of the Defense Information Infrastructure/ Common
Operating Environment (DII/COE) segments into the IT-21 backbone;
providing network solutions consistent with IT-21 standards for server
software, electronic mail, and office suite; and
- - developing and implementing data compression technology to support
increased data transmission over existing networks.
The Company's acquisition of two firms during fiscal 1998 adds to our strength
in this arena. Command Control, Inc. provides C(4)I services to the U.S. Army
Forces Command and to the U.S. Special Operations Command, including network
services, system engineering, system analysis, programming and database design
and development. The purchase of a division of Dalco Electronics Corp. enables
us to provide field engineering services to meet the Navy's growing need to
service its C(4)I equipment. These acquisitions expand our C(4)I business base
within the Department of Defense and provide a springboard to support programs
involving joint Army, Navy, and Air Force initiatives.
As the primary developer of sensor performance prediction and decision support
systems for the Naval Sea Systems Advanced Systems and Technology Office,
Analysis & Technology already enjoys niche market leadership within the Navy
market. Our tactical decision aid tools use data fusion and overlay techniques
to organize and display the massive amounts of data available to warfighters in
real time.
During fiscal 1998, we were awarded several five-year contracts with substantial
potential value in the C4I arena:
- - $21.1 million with the Naval Research Laboratory for
littoral/expeditionary warfare systems support and environmental
acoustic analysis;
- - $16.9 million with the Fleet Technical Support Center, Atlantic, for
maintenance and design engineering improvements for antennas associated
with electronic warfare systems and
- - $11.4 million multiple award with the Naval Undersea Warfare Center for
software systems engineering.
8
<PAGE> 11
C(4)I DECISIONWARE DATA DRIVEN PROCESSES WEB TECHNOLOGIES
TRAINING/READINESS
The U.S. Navy is outsourcing a growing percentage of its total training
requirements, and increasingly moving its training operations to the fleet to
save shore-side infrastructure expense and time away from duty stations.
Analysis & Technology provides both training specialists who can live aboard
ship while conducting training, as well as technology-based training systems
which are easily deployable pier-side and onboard.
SURFACE COMBATANT-21
The Navy plans a new generation of surface warships for the 21st century through
its Surface Combatant-21 initiative. Analysis & Technology's engineers and
scientists offer unique backgrounds and experience in acoustics, structureborne
noise sources, tactics, and sonar signal processing, which we plan to deploy in
support of SC-21.
INFORMATION TECHNOLOGY FOR THE 21ST CENTURY
The Department of Defense is creating a network-centric infrastructure to
provide real-time information to support planning and combat decisions. Our
subsidiary, Integrated Performance Decisions (IPD), has contributed to this
effort through development of the Meteorology and Oceanography (METOC) system.
METOC provides high resolution satellite imagery and up-to-the minute weather
data for command, control, computers, communications, and intelligence (C(4)I)
decisions.
9
<PAGE> 12
TECHNOLOGY-BASED TRAINING SYSTEMS
CUSTOM DEVELOPMENT: HIGH OCTANE
As a custom developer of performance improvement systems, Interactive Media must
produce cost effective, timely, and high-quality systems for clients. We take
advantage of reusable code in the form of a proprietary multimedia presentation
engine and automated storyboarding tool we call "High Octane" to simplify
courseware development. High Octane decreases the effort required for many of
the most time-consuming multimedia development and modification operations.
CLIENT FOCUS
Our clients remain at the center of every phase of Interactive Media's training
delivery process. Listening to the customer is key. We see the training model as
a blend of different methods depending on a company's industry, learning-style,
and budget. Vertical market knowledge enables us to consult with clients to
identify the best performance improvement solutions, and our development process
closely involves clients so that the training system delivered achieves
objectives.
WEB-BASED TRAINING
Web-based training, on-line learning, and distance learning are all redefining
the delivery and capability of corporate training. Interactive Media provides
clients with training systems designed to optimize the potential of these
delivery methods while minimizing their limitations. Network-based training adds
significantly to the mix of products and services we can offer to clients.
WEB-BASED TRAINING INSTRUCTIONAL DESIGN HUMAN FACTORS ENGINEERING
<PAGE> 13
[INTERACTIVE MEDIA LOGO]
Analysis & Technology's Interactive Media Corp. subsidiary creates technology-
and Web-based training using leading-edge multimedia technologies incorporating
text or data, graphics or images, sound or music, animation and digital video.
By combining media types, our team of professionals can produce interactive
training that not only trains but, when desired, also entertains.
Interactive Media was created as a wholly-owned subsidiary of Analysis &
Technology during fiscal 1998 by combining several existing business units. The
subsidiary's first year was eventful and successful. Commercial revenue grew 59%
to $14.7 million, accounting for 70% of Interactive Media's fiscal 1998 revenue.
Contributing to growth were the strategic acquisitions of two companies --
Interactive Media Solutions, Inc., based in San Francisco, and UP, Inc. based in
Herndon, Virginia. Both firms added Fortune 1000 companies to our customer base.
Our performance improvement model varies, depending on a company's budget and
learning style. Web-based training is an important market development that adds
significantly to the mix of training products and services we can field.
Core competencies include computer- and Web-based training, human factors
engineering, software engineering, graphic design, video production, distance
learning, and performance support systems (PSS). Our interactive multimedia
training systems build on our strengths and expertise in database development
and networks. This broad base of information technology capabilities has
positioned us well for the emerging Web-based training delivery channel.
Before the first line of courseware code is developed, Interactive Media's
instructional designers work with clients to determine the best learning model
to utilize, and what specific behavioral training objectives must be met. Even
prior to this, Interactive Media account executives have consulted with clients
to determine the most appropriate performance improvement approach, given the
client's industry and particular business or product strategy. (continued)
Market Trends
Why training, why now? The unprecedented rate of change in technology and
business processes has produced many benefits for companies. But rapid change
has also contributed to an emerging skills gap that has made it more difficult
for businesses to fill positions, train new hires and keep veteran employees up
to speed.
This skills gap has been compounded by yet another dynamic: compared with the
pace of change in technological and business climates, traditional training
methods are slow - and costly.
Last year, U.S. corporations spent approximately $60 billion on training,
according to Dataquest, the market research arm of the Gartner Group. The
majority of these expenditures went for traditional instructor-led training.
Market researchers estimate that 17% to 25%, or up to $15 billion, of total
corporate spending is directed to technology or computer-based training.
This segment of the training market, however, is expected to experience
accelerated growth, according to industry experts. The market for high-end
multimedia training systems is estimated at approximately $4.5 billion, up 80%
from $2.5 billion in 1996, according to Training Magazine. Corporate spending on
Web-based training, in which training content is delivered over the Internet or
a private intranet, could reach as much as $6 billion by 2002, International
Data Corp. reported. In contrast, instructor-led training is expected to grow
at approximately 7% a year through 2001, according to the same source.
(continued)
<PAGE> 14
Interactive Media staff possess content expertise in our target vertical
markets: telecommunications, financial services, and pharmaceuticals, which we
find is important in helping clients reach the most effective performance
improvement solution. Our demonstrated ability to deliver quality products and
service on schedule has been a key factor in our success.
During fiscal 1998, Interactive Media also struck a strategic marketing alliance
with Macromedia, the San Francisco-based software product developer. The
alliance combines Macromedia's technology-based training development tools with
Interactive Media's custom training development services to implement on-line
learning solutions for corporations across the country.
Interactive Media also won a multiple award contract with the Internal Revenue
Service. Under the contract, which has a potential value of $55 million over
five years, we will support the agency's efforts to improve the performance of
its 114,000 employees through skill assessment and training. We will perform
cost-benefit and emerging technology studies, develop new approaches to
personnel assessments, and will develop instructional materials including
distance learning and computer-based training. Results like these reflect the
technical depth and customer focus of Interactive Media.
With nine locations coast to coast and more than 300 professionals, Interactive
Media is one of the largest custom technology-based training developers in the
U.S. Many large corporations have recognized the strategic benefits of using
interactive multimedia tools for employee development and training initiatives.
By providing superior products and service, we have been able to build a
customer base that includes Fortune 1000 companies, which often require both a
local presence and balanced project teams.
Market Trends
MARKET DRIVERS FOR TECHNOLOGY- AND WEB-BASED TRAINING INCLUDE:
- - cutting training costs dramatically by eliminating excessive travel and
classroom expenses;
- - improving training effectiveness and return on investment by enabling
employees to learn faster and retain more information than with
traditional methods;
- - increasing employee productivity by delivering training whenever and
wherever employees need it; and
- - providing built-in methods to track trainees' progress, including
evaluating them and certifying work completion.
The computer-based training market is shared by three types of companies: title
providers, tool providers, and custom developers, like Interactive Media Corp.
Title providers sell off-the-shelf training for generic IT products or business
skills, e.g. "Trouble shooting LANs" or "Sales Skills for the Beginner." Tool
providers sell authoring development software that companies utilize to build
their own interactive courseware. Sample products are Macromedia's
Authorware(TM) and Director(TM). Custom developers build complex and/or lengthy
courseware that requires sophisticated development capabilities that exceed the
capability or capacity of most in-house training departments.
The custom technology-based training market has been highly fragmented, with
numerous small providers in various regions of the country. Recently, it has
been marked by consolidation, as tool providers have acquired these firms to add
custom-development services to their product offerings. Interactive Media
expects to continue to participate in the consolidation trend as an acquirer.
<PAGE> 15
FINANCIAL INFORMATION
Selected Financial Data
14
Management's Discussion
and Analysis
15
Consolidated Financial
Statements
18
Notes to Consolidated
Financial Statements
22
Independent
Auditors' Report
33
<PAGE> 16
SELECTED FINANCIAL DATA: A FIVE YEAR SUMMARY
<TABLE>
<CAPTION>
Years ended March 31, 1998 1997 1996 1995 1994
Amounts in thousands except per share and employee data
<S> <C> <C> <C> <C> <C>
Revenue from continuing operations $ 159,956 $142,547 $ 122,924 $ 131,174 $ 129,359
Costs and expenses 152,011 135,777 116,670 125,222 124,000
- -------------------------------------------------------------------------------------------------------------------------------
Operating earnings from continuing operations 7,945 6,770 6,254 5,952 5,359
Interest expense, net 171 319 512 542 554
Other, net (570) 638 338 269 433
- -------------------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations before
income taxes 8,344 5,813 5,404 5,141 4,372
Income taxes on earnings from
continuing operations 4,152 2,437 1,816 2,171 1,856
- -------------------------------------------------------------------------------------------------------------------------------
Net earnings from continuing operations $ 4,192 $ 3,376 $ 3,588 $ 2,970 $ 2,516
- -------------------------------------------------------------------------------------------------------------------------------
Discontinued operations:
Loss from discontinued operations,
net of income tax (expense) benefit -- -- (195) (197) (17)
Loss on disposal of discontinued operations,
net of income tax benefit -- -- (1,316) -- --
- -------------------------------------------------------------------------------------------------------------------------------
Net earnings $ 4,192 $ 3,376 $ 2,077 $ 2,773 $ 2,499
===============================================================================================================================
Basic earnings per share:
Continuing operations $ 1.19 $ 0.96 $ 0.99 $ 0.84 $ 0.76
Discontinued operations -- -- (0.42) (0.05) (0.01)
- -------------------------------------------------------------------------------------------------------------------------------
Basic earnings per share $ 1.19 $ 0.96 $ 0.57 $ 0.79 $ 0.75
- -------------------------------------------------------------------------------------------------------------------------------
Diluted earnings per common and common
equivalent share:
Continuing operations $ 1.07 $ 0.93 $ 0.96 $ 0.80 $ 0.71
Discontinued operations -- -- (0.40) (0.05) (0.01)
- -------------------------------------------------------------------------------------------------------------------------------
Diluted earnings per common and
common equivalent share $ 1.07 $ 0.93 $ 0.56 $ 0.75 $ 0.70
- -------------------------------------------------------------------------------------------------------------------------------
Weighted average shares and common
equivalent shares outstanding:
Basic 3,530 3,500 3,624 3,520
3,224
Diluted 3,850 3,609 3,741 3,704 3,550
Dividends per share $ 0.21 $ 0.20 $ 0.18 $ 0.17 $ 0.16
- -------------------------------------------------------------------------------------------------------------------------------
Working capital $ 14,455 $ 16,578 $ 19,789 $ 15,610 $ 12,676
Contract receivables $ 25,637 $ 24,693 $ 24,250 $ 27,322 $ 24,174
Total assets $ 63,609 $ 57,813 $ 56,437 $ 61,003 $ 54,438
Long-term debt (including current installments) $ 2,490 $ 2,803 $ 3,081 $ 7,242 $ 4,631
Shareholders' equity $ 44,347 $ 39,989 $ 39,279 $ 37,174 $ 34,442
Equity per common share $ 12.27 $ 11.61 $ 10.73 $ 10.45 $ 9.91
Number of full-time employees 1,606 1,502 1,373 1,535 1,556
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of Operations
The following table shows the relationship of selected income statement items to
revenue and presents earnings per share for the last three years:
<TABLE>
<CAPTION>
Year ended March 31, 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------
Percentage of Revenue:
<S> <C> <C> <C>
Revenue from continuing operations 100.0% 100.0% 100.0%
Costs and expenses 95.0 95.3 94.9
Operating earnings from continuing
operations 5.0 4.7 5.1
Earnings from continuing operations
before income taxes 5.2 4.1 4.4
Income taxes on earnings from
continuing operations 2.6 1.7 1.5
Net earnings from continuing operations
without R&D tax credits 2.6 2.4 2.6
Net earnings from continuing operations
including R&D tax credits 2.6 2.4 2.9
Discontinued operations:
Loss from discontinued operations,
net of income tax benefit -- -- (0.2)
Loss on disposal of discontinued
operations, net of income tax benefit -- -- (1.1)
Net earnings 2.6% 2.4% 1.7%
Basic earnings per common share:
Continuing operations without R&D
tax credits $ 1.19 $ 0.96 $ 0.88
Continuing operations including R&D
tax credits $ 1.19 $ 0.96 $ 0.99
Discontinued operations -- -- $ (0.42)
- ---------------------------------------------------------------------------------------------------------
Net earnings $ 1.19 $ 0.96 $ 0.57
=========================================================================================================
Diluted earnings per common and common equivalent share:
Continuing operations without
R&D tax credits $ 1.07 $ 0.93 $ 0.85
Continuing operations including
R&D tax credits $ 1.07 $ 0.93 $ 0.96
Discontinued operations -- -- $ (0.40)
- ---------------------------------------------------------------------------------------------------------
Net earnings $ 1.07 $ 0.93 $ 0.56
=========================================================================================================
</TABLE>
The major factors in the comparison of fiscal 1998 with fiscal 1997 are as
follows:
- - Revenue increased 12.2% to $160.0 million from $142.5 million.
- - Revenue for the Company's Engineering and Information Technologies
(Engineering/IT) business increased 11.5%.
- - In July 1997, the Company formed a new subsidiary, Interactive Media
Corp. (Interactive Media), consolidating several business units into an
interactive multimedia training organization with a charter to grow the
Company's commercial technology-based training business.
- - Interactive Media's revenue increased 17.3%, including a 58.7% increase
in commercial revenue. During the fiscal year, Interactive Media's work
mix shifted from Department of Defense business to commercial business.
- - Operating margin increased to 5.0% from 4.7%.
- Operating margin was 5.3% without the effect of a non-recurring
software charge.
- Operating margin was 5.3% for Engineering/IT and 5.4% for
Interactive Media.
- Margins improved due to improved cost controls. Also contributing
to margin improvement in Interactive Media was a decrease of fixed
indirect expenses as a percent of revenue due to revenue growth.
- - Net earnings were $4.2 million compared with $3.4 million, an increase
of 24.2%. During fiscal 1998, the Company sold its share of a joint
venture, Automation Software Incorporated (ASI), and took the software
charge previously noted. The joint venture sale increased the Company's
effective tax rate. The net effect of these non-recurring items and
their tax effects was an after-tax gain of $87 thousand.
- - Basic earnings per share increased 24.0% to $1.19 from $0.96. On a
fully diluted basis, earnings per share increased 15.1% to $1.07
compared to $0.93.
- - A three-for-two stock split in the form of a stock dividend was
distributed on January 29, 1998 to shareholders of record at the close
of business on January 2, 1998.
Fiscal 1998 Compared with Fiscal 1997
Revenue increased 12.2% to $160.0 million in fiscal 1998 from $142.5 million in
fiscal 1997. The revenue increase is attributable to continued growth in both
the Company's Engineering/IT business and in its Interactive Media
technology-based training business. In fiscal 1998, the Company's Engineering/IT
revenue grew 11.5% to $140.0 million from $125.4 million in fiscal 1997.
Interactive Media's revenue increased 17.3% to $20.1 million. Its commercial
revenue increased 58.7% to $14.7 million. During the year, Interactive Media's
work mix shifted from Department of Defense business to commercial business.
The Company made five acquisitions during the fiscal year. Within
Engineering/IT, the Company made the following acquisitions:
- - Dalco Electronics Corporation's surface and electronic warfare
equipment overhaul and repair business, annual revenue of approximately
$1 million, acquired in August 1997.
- - Command Control, Inc.'s command, control, computers, communications and
intelligence (C(4)I) service business, annual revenue of approximately
$4 million, acquired in October 1997.
- - Cambridge Acoustical Associates, Inc.'s structural and acoustic
analysis and passive and active noise control business, annual revenue
of approximately $1 million, acquired in February 1998.
Within Interactive Media, the following companies were acquired:
- - Interactive Media Solutions, Inc., annual revenue of approximately $1
million, acquired in April 1997. The Company is a technology-based
training provider located in northern California.
- - UP, Inc., annual revenue of approximately $7.3 million, acquired in
November 1997. UP, Inc. is a technology-based training provider to
clients in telecommunications, financial services, and other
industries.
Analysis & Technology, Inc. and Subsidiaries 15
<PAGE> 18
In total, these acquisitions added approximately $6.6 million to the Company's
fiscal 1998 revenue.
During the year, total backlog varied between $461.7 million and $589.4 million.
In fiscal 1998, $50.7 million of backlog expired without being funded, while in
fiscal 1997, $19.5 million of backlog expired without being funded. The backlog
used during fiscal 1998, plus the unfunded backlog that expired, was more than
offset by newly awarded contracts and backlog added as a result of the Company's
acquisitions. Backlog as of March 31, 1998 was $589.4 million, a 22.6% increase
from $480.7 million at the end of fiscal 1997 and is well above the Company's
benchmark of two and one-half times current revenue. Government funding
continues to be dependent on congressional approval of program level funding and
on contracting agency approval for the Company's work. The extent to which
backlog will be funded in the future cannot be determined.
Operating earnings increased 17.4% to $7.9 million from $6.8 million in fiscal
1997. Operating margins were 5.0% in fiscal 1998 compared with 4.7% in fiscal
1997. Fiscal 1998 operating earnings were negatively affected by software
charges totaling $530 thousand, recorded in the second quarter of fiscal 1998,
primarily for capitalized software development costs to support customers in the
natural gas business and software development and related costs for image
processing products which the Company deemed to be unrecoverable. Without these
charges, the operating margin for fiscal 1998 was 5.3%.
Operating margin for Engineering/IT, without the software charges, increased
from 5.0% in fiscal 1997 to 5.3% in fiscal 1998. Operating margin for
Interactive Media during these same periods increased from 3.2% to 5.4%. Margins
improved overall because of improved cost controls. Also contributing to margin
improvement in Interactive Media was a decrease of fixed indirect expenses as a
percent of revenue due to revenue growth.
Total other expenses were affected by the sale of the Company's interest in ASI
to the Company's joint venture partner. The sale resulted in a pre-tax gain of
$1.6 million in fiscal 1998. In addition, the proceeds from the sale were used
to pay down long-term debt resulting in decreased interest expense in fiscal
1998. Other net expense increased in fiscal 1998 to 0.6% of revenue compared
with 0.5% of revenue in fiscal 1997. The other net expense increase was due, in
part, to the amortization of goodwill associated with the Company's fiscal 1998
acquisitions.
Earnings before income taxes increased 43.5% to $8.3 million from
$5.8 million in fiscal 1997. The Company's effective tax rate on earnings before
income taxes was 49.8% in fiscal 1998 compared with 41.9% in fiscal 1997. The
effective tax rate was higher in fiscal 1998, primarily due to the recognition
of deferred taxes on undistributed earnings of the Company's joint venture as a
result of the sale, and due to an increase in nondeductible amortization of
goodwill associated with the Company's acquisitions. The effective tax rate
without the effect of the joint venture sale was 43.9%.
Net earnings increased 24.2% to $4.2 million from $3.4 million in fiscal 1997.
The revenue increase and the operating margin increase both contributed to the
net earnings increase. The net effect of the sale of the Company's interest in
its joint venture and the software charges noted above and related tax effects
was an after-tax gain of $87 thousand for fiscal 1998.
Basic earnings per common share increased 24.0% to $1.19 from $0.96 in fiscal
1997. Diluted earnings per common and common equivalent share increased 15.1% to
$1.07 from $0.93 in fiscal 1997.
A three-for-two stock split in the form of a stock dividend was distributed on
January 29, 1998 to shareholders of record at the close of business on January
2, 1998. All numbers of common shares and earnings per share amounts in this
report have been restated to reflect this stock split.
The weighted average number of common shares used to compute basic earnings per
share for fiscal 1998 and fiscal 1997, remained constant at 3.5 million. The
weighted average number of common and common equivalent shares used to compute
diluted earnings per share increased to 3.9 million in fiscal 1998 from 3.6
million in fiscal 1997. The increase was due primarily to an increase in the
number of stock options outstanding and a higher average stock price, offset in
part by the repurchase of the Company's shares as discussed more fully below in
"Liquidity and Capital Resources."
Fiscal 1997 Compared with Fiscal 1996
Revenue from continuing operations increased 16.0% to $142.5 million in fiscal
1997 from $122.9 million in fiscal 1996. Revenue for the Company's core defense
business increased by $15.4 million or 14.9% from the prior year. The
acquisition of Vector Research in July 1996 contributed $10.3 million to this
increase. Revenue for the Company's non-defense business increased 21.5% to
$23.6 million. The Company's commercial technology-based training business grew
30.1% to $9.3 million.
The increase in revenue in fiscal 1997 is also attributable to an increase in
non-labor related revenue. Non-labor related items such as purchased components,
computer usage, travel, and work subcontracted to other companies totaled $33.0
million in fiscal 1997, a $7.1 million increase as compared with fiscal 1996.
Non-labor related revenue increased due to an increase of work subcontracted to
other companies and an increase in purchased components by the Company under a
contract to provide minesweeping equipment to the U.S. Navy.
During fiscal 1997, total backlog varied between $463.9 million and $544.0
million. During the year, $19.5 million of backlog expired without being funded,
while in fiscal 1996, $6.3 million of backlog expired without being funded.
Backlog as of March 31, 1997 was $480.7 million, a 4.8% increase from $458.8
million at the end of fiscal 1996.
Operating earnings from continuing operations increased 8.3% to $6.8 million
from $6.3 million in fiscal 1996. Operating margin from continuing operations
was 4.7% in fiscal 1997 compared with 5.1% in fiscal 1996. The decrease in
operating margin was primarily due to lower fees earned on fixed-price contracts
and to increased expenditures in the Company's commercial training business,
where the Company was building both its management and sales capabilities.
Total other expenses as a percentage of revenue remained constant at 0.7% for
both fiscal 1997 and fiscal 1996. Interest expense decreased due to lower
borrowing levels under the Company's revolving credit agreement as a result of
cash generated by the sale of its subsidiary, General Systems Solutions, Inc.
(GSS) on October 31, 1995. Interest income decreased in fiscal 1997 as a result
of the Company's acquisition of Vector Research. The Company's share of income
from its former joint venture, ASI, was $90 thousand, a 74% decrease from the
prior year.
16 Analysis & Technology, Inc. and Subsidiaries
<PAGE> 19
Earnings from continuing operations before income taxes increased 7.6% to $5.8
million from $5.4 million in fiscal 1996. The Company's effective tax rate on
earnings before income taxes was 41.9% in fiscal 1997 compared with 33.6% in
fiscal 1996. The lower effective tax rate in fiscal 1996 was mainly the result
of the Company's recognition of federal and state research and development (R&D)
tax credits totaling $400,000.
Net earnings from continuing operations increased 5.9% to $3.4 million from $3.2
million in fiscal 1996 before the recognition of R&D tax credits. Basic earnings
per common share from continuing operations without R&D tax credits increased
9.1% to $0.96 from $0.88 in fiscal 1996. Diluted earnings per common and common
equivalent share from continuing operations without the R&D tax credits
increased 9.4% to $0.93 from $0.85 in fiscal 1996. Net earnings for fiscal 1997,
increased by 62.5% to $3.4 million from $2.1 million in fiscal 1996, which
included the R&D tax credits and a $1.3 million after-tax loss on the sale of
GSS. Basic earnings per common share increased 68.4% to $0.96, compared with
$0.57 in the prior year. Diluted earnings per common and common equivalent share
increased 66.1% to $0.93 from $0.56 in the prior year.
The weighted average number of common shares used to compute basic earnings per
share decreased 3.5% to 3.5 million from 3.6 million in fiscal 1996. The
weighted average number of common and common equivalent shares used to compute
diluted earnings per share decreased 3.7% to 3.6 million from 3.7 million in
fiscal 1996. The decreases were due in part to the repurchase of 263,550 common
shares (post-split) under the Company's repurchase program.
Liquidity and Capital Resources
For fiscal 1998, net cash provided by operating activities totaled $7.8 million.
The net cash increase resulted primarily from net earnings before deducting
non-cash charges for depreciation of property and amortization of intangible
assets, and a decrease in contract, notes, and other receivables of $1.1
million. The decrease in contract receivables was due primarily to faster
payment by the government as a result of electronic processing of selected
government invoices and to collection of receivables under firm fixed-price
contracts. Contract receivables totaled $25.6 million, $24.7 million and $24.2
million as of March 31, 1998, 1997, and 1996, respectively, and represented
approximately 40%, 43%, and 43% of total assets as of those dates. The average
period of payment to the Company was 54 days at March 31, 1998; 58 days at March
31, 1997; and 71 days at March 31, 1996.
Net cash used in investing activities for fiscal 1998 totaled $9.1 million. Cash
provided from the sale of ASI of $3.0 million was more than offset by facility
expenditures and by expenditures for the Company's fiscal 1998 acquisitions.
Payments for the acquisitions were made from existing cash and funds available
under the Company's revolving credit agreement.
Net cash used in financing activities for fiscal 1998 totaled $670 thousand. The
primary source of cash from financing activities was from the exercise of stock
options. The primary uses of cash from financing activities were for the payment
of dividends and the repurchase of the Company's common shares. On May 30, 1997,
the Company announced it had expanded its share repurchase program. The
Company's Board of Directors authorized the repurchase of an additional 450,000
shares or a total of up to 750,000 shares in amounts and at times and prices to
be determined by the Company's management. Since the program was initiated in
March 1996, the Company has repurchased 356,500 shares. Since March 31, 1997 the
company has repurchased 92,950 shares under this repurchase program at current
market prices on the dates of purchase. There are approximately 3.6 million
shares outstanding at March 31, 1998.
Any capital needs not satisfied by cash generated from operations, were, and in
the future will be, met with money borrowed by the Company under its revolving
credit agreement. The total funds available to the Company under its revolving
credit agreement at March 31, 1998 were $20.0 million. There was no borrowing
under the Company's agreement as of March 31, 1998 and 1997.
It is anticipated that the Company's existing cash, together with funds
generated from operations and available borrowings under its revolving credit
agreements, will be sufficient to meet its normal working capital requirements
for the foreseeable future. As of March 31, 1998, the Company does not have any
major capital commitments.
The Company believes that inflation has not had a material effect on its
business.
Year 2000 Conversion
The Company is in the process of conducting an assessment of its computer
systems to identify the systems that could be affected by the "Year 2000" issue.
The Company is evaluating appropriate courses of corrective action, including
modification or replacement of certain systems. The Company presently believes
that, with modifications to existing software and conversions to new software,
the "Year 2000" issue will not pose significant operational problems for the
Company's computer systems. The total cost of modification and replacement of
affected systems is not expected to have a material effect on the Company's
financial position or results of operations.
The "Year 2000" issue also creates risk for the Company from unforeseen problems
from third parties with whom the Company deals. The Company is in the process of
contacting its key suppliers, customers, and other third parties to determine
the possible impact on its business. There can be no assurance that their "Year
2000" solutions will be successful. If third parties do not convert their
systems in a timely manner, it could have a material impact on the Company's
ability to conduct its business.
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 are set forth in the paragraphs above that discuss
the Company's backlog, liquidity, capital resources, and "Year 2000" conversion.
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: general economic conditions,
Navy program funding priorities, budget reductions in defense programs, delays
in the development and acceptance of new commercial products, pricing pressures
from competitors and/or customers, and third party failures to complete their
"Year 2000" conversions in a timely manner. A more complete discussion of
business risk factors is included in the Company's Form 10-K for the year ended
March 31, 1998.
Analysis & Technology, Inc. and Subsidiaries 17
<PAGE> 20
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As of March 31, 1998 1997
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 953,677 $ 2,977,058
Contract receivables (note 4) 25,637,041 24,693,115
Notes and other receivables 665,497 422,031
Prepaid expenses 831,928 777,030
- ----------------------------------------------------------------------------------------------------------
Total current assets 28,088,143 28,869,234
- ----------------------------------------------------------------------------------------------------------
Property, buildings and equipment, net (notes 5 and 6) 14,886,072 13,963,973
- ----------------------------------------------------------------------------------------------------------
Other assets:
Goodwill, net of accumulated amortization (note 5) 15,401,697 9,463,588
Product development costs, net of accumulated amortization (note 5) 301,993 563,702
Deferred Compensation Plan investments (note 9) 3,467,388 3,033,271
Investment in joint venture -- 1,391,548
Notes receivable 538,933 --
Deposits and other assets 504,508 409,965
Deferred income taxes (note 7) 420,480 117,599
- ----------------------------------------------------------------------------------------------------------
20,634,999 14,979,673
- ----------------------------------------------------------------------------------------------------------
Total assets $63,609,214 $57,812,880
==========================================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Current installments of long-term debt (note 6) $ 328,646 $ 313,032
Accounts payable 439,209 1,246,251
Accrued expenses (note 10) 11,350,703 9,375,659
Dividends payable 765,668 693,536
Deferred income taxes (note 7) 749,238 662,773
- ----------------------------------------------------------------------------------------------------------
Total current liabilities 13,633,464 12,291,251
Long-term debt, excluding current installments (note 6) 2,161,083 2,489,652
Other long-term liabilities (note 9) 3,467,513 3,043,476
- ----------------------------------------------------------------------------------------------------------
Total liabilities 19,262,060 17,824,379
- ----------------------------------------------------------------------------------------------------------
Commitments and contingencies (notes 4, 9, and 11)
Shareholders' equity (notes 8 and 9):
Common stock, $.083 stated value. Authorized 11,250,000
shares; issued and outstanding 3,614,537 shares in 1998
and 3,443,681 shares in 1997 301,212 286,974
Additional paid-in capital 8,927,905 8,009,386
Retained earnings 35,118,037 31,692,141
- ----------------------------------------------------------------------------------------------------------
Total shareholders' equity 44,347,154 39,988,501
- ----------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $63,609,214 $57,812,880
==========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
18 Analysis & Technology, Inc. and Subsidiaries
<PAGE> 21
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Years ended March 31, 1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Revenue from continuing operations $ 159,956,294 $ 142,547,174 $ 122,923,875
Costs and expenses 152,011,128 135,777,206 116,669,930
------------- ------------- -------------
Operating earnings from continuing operations 7,945,166 6,769,968 6,253,945
------------- ------------- -------------
Other expense (income):
Interest expense 296,209 397,417 640,660
Interest income (125,200) (77,803) (129,105)
Equity in income of joint venture (16,969) (90,445) (345,842)
Gain on sale of joint venture (1,591,483) -- --
Other, net 1,038,798 728,281 684,309
------------- ------------- -------------
(398,645) 957,450 850,022
------------- ------------- -------------
Earnings from continuing operations before income taxes 8,343,811 5,812,518 5,403,923
Income taxes on earnings from continuing operations (note 7) 4,152,247 2,436,982 1,815,542
------------- ------------- -------------
Net earnings from continuing operations $ 4,191,564 $ 3,375,536 $ 3,588,381
------------- ------------- -------------
Discontinued operations (note 3):
Loss from discontinued operations, net of income tax
benefit of $135,321 in 1996 -- -- (194,730)
Loss on disposal of discontinued operations, net of
income tax benefit of $1,392,730 in 1996 -- -- (1,316,030)
------------- ------------- -------------
Net earnings $ 4,191,564 $ 3,375,536 $ 2,077,621
============= ============= =============
Basic earnings (loss) per common share:
Continuing operations $ 1.19 $ 0.96 $ 0.99
Discontinued operations -- -- (0.42)
------------- ------------- -------------
Basic earnings (loss) per share $ 1.19 $ 0.96 $ 0.57
============= ============= =============
Diluted earnings per common and common equivalent share:
Continuing operations $ 1.07 $ 0.93 $ 0.96
Discontinued operations -- -- (0.40)
------------- ------------- -------------
Diluted earnings per common and common equivalent share $ 1.07 $ 0.93 $ 0.56
============= ============= =============
Weighted average shares and common equivalent shares
outstanding (notes 2 and 8)
Basic 3,530,006 3,499,742 3,623,95
============= ============= =============
Diluted 3,849,242 3,609,210 3,740,627
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
Analysis & Technology, Inc. and Subsidiaries 19
<PAGE> 22
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION> Common Stock
---------------------- Additional Total
Stated paid-in Retained shareholders'
Years ended March 31, 1998, 1997, and 1996 Shares value capital earnings equity
---------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balances at March 31, 1995 3,557,099 $ 296,425 $ 9,285,867 $ 27,591,401 $ 37,173,693
Proceeds from sale of common stock 103,356 8,613 678,343 -- 686,956
Net earnings -- -- -- 2,077,621 2,077,621
Cash dividends declared - $.18 per share -- -- -- (658,881) (658,881)
---------- --------- ----------- ------------ ------------
Balances at March 31, 1996 3,660,455 305,038 9,964,210 29,010,141 39,279,389
Proceeds from sale of common stock 46,776 3,898 290,912 -- 294,810
Repurchase and retirement of common stock (263,550) (21,962) (2,297,238) -- (2,319,200)
Net earnings -- -- -- 3,375,536 3,375,536
Tax benefit of stock options exercised -- -- 51,502 -- 51,502
Cash dividends declared - $.20 per share -- -- -- (693,536) (693,536)
---------- --------- ----------- ------------ ------------
Balances at March 31, 1997 3,443,681 286,974 8,009,386 31,692,141 39,988,501
Proceeds from sale of common stock 263,806 21,984 1,651,832 -- 1,673,816
Repurchase and retirement of common stock (92,950) (7,746) (1,329,812) -- (1,337,558)
Net earnings -- -- -- 4,191,564 4,191,564
Tax benefit of stock options exercised 596,499 596,499
Cash dividends declared - $.21 per share -- -- -- (765,668) (765,668)
---------- --------- ----------- ------------ ------------
Balances at March 31, 1998 3,614,537 $ 301,212 $ 8,927,905 $ 35,118,037 $ 44,347,154
========== ========= =========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
20 Analysis & Technology, Inc. and Subsidiaries
<PAGE> 23
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended March 31, 1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities:
Net earnings $ 4,191,564 $ 3,375,536 $ 2,077,621
Adjustments to reconcile net earnings to net cash
provided by continuing operations:
Gain on sale of joint venture (1,591,483) -- --
Loss associated with discontinued operations -- -- 1,510,760
Equity in income of joint venture (16,969) (90,445) (345,841)
Write-off of product development costs 280,555 -- --
Depreciation and amortization of property,
buildings, and equipment 2,379,912 2,528,929 2,670,248
Amortization of goodwill 724,003 562,257 452,840
Amortization of product development costs 162,447 113,908 116,142
Provision for deferred income taxes (537,216) (744,685) 33,368
Loss on sale of equipment 108,563 243,832 275,958
Gain on sale of marketable securities -- (35,268) --
Decrease (increase) in:
Contract, notes and other receivables 1,054,340 3,535,670 2,955,243
Prepaid expenses 405,847 858,565 (599,582)
Other assets (472,760) (526,977) (161,970)
Increase (decrease) in:
Accounts payable and accrued expenses 661,164 173,527 (2,815,471)
Other long-term liabilities 424,037 (486,839) 298,103
----------- ----------- -----------
Net cash provided by continuing operations 7,774,004 9,508,010 6,467,419
Net cash used for discontinued operations -- (400,000) (3,344,693)
----------- ----------- -----------
Net cash provided by operating activities 7,774,004 9,108,010 3,122,726
----------- ----------- -----------
Investing activities:
Proceeds from sale of discontinued operations -- -- 8,006,989
Additions to property, buildings, and equipment (3,030,794) (2,327,142) (1,748,387)
Product development costs - continuing operations (130,668) (315,866) (277,283)
Product development costs - discontinued operations -- -- (1,124,560)
Proceeds from the sale of equipment 10,695 20,991 5,937
Proceeds from sale of joint venture 3,000,000 -- --
Proceeds from sale of marketable securities -- 205,603 --
Acquisition of business units (net of cash acquired) (8,976,384) (4,932,757) (217,359)
----------- ----------- -----------
Net cash provided by (used for) investing activities (9,127,151) (7,349,171) 4,645,337
----------- ----------- -----------
Financing activities:
Repayments of long-term borrowings (312,956) (278,009) (4,161,739)
Repurchase of common stock (1,337,558) (2,319,200) --
Proceeds from sale of common stock 1,673,816 294,810 686,956
Dividends paid (693,536) (658,881) (616,153)
----------- ----------- -----------
Net cash used for financing activities (670,234) (2,961,280) (4,090,936)
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents (2,023,381) (1,202,441) 3,677,127
Cash and cash equivalents:
Beginning of year 2,977,058 4,179,499 502,372
----------- ----------- -----------
End of year $ 953,677 $ 2,977,058 $ 4,179,499
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
Analysis & Technology, Inc. and Subsidiaries 21
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1
Description of Business, Acquisitions, and Divestitures
Analysis & Technology, Inc. (A&T) initially provided tactical analysis to the
Office of Naval Research and sonar analysis to the Naval Underwater Systems
Center, now known as the Naval Undersea Warfare Center. During the past 29
years, A&T and Subsidiaries (the Company) have grown to provide system and
engineering technologies, technology-based training systems, and information
technologies for the military, civil government agencies, and private industry.
The Company has the following wholly-owned subsidiaries:
- - Interactive Media Corp. (Interactive Media) which designs and
implements training programs for commercial and government customers.
- - Integrated Performance Decisions, Inc. (IPD), which develops and
implements performance decision software products for U.S. Navy (the
Navy) customers and provides software and information technology
products and services for commercial customers.
- - Analysis & Technology Australia Pty. Ltd. which provides training
systems and software development services in Australia. Analysis &
Technology International Corporation and Numerical Decisions, Inc. are
subsidiaries formed by the Company to perform international work but
are not currently operational.
The Company typically performs its Department of Defense services under cost
reimbursement contracts whereby the U.S. Government reimburses the Company for
contracted costs and pays a fee. In fiscal 1998, 1997, and 1996, the amount of
the Company's non-defense revenue was $30.1 million, $23.7 million, and $20.2
million, respectively.
The Company has made the following acquisitions accounted for as purchases:
On November 14, 1997, the Company acquired all of the stock of UP, Inc. ("UP")
of Herndon Virginia, for $5.3 million in cash plus related expenses. UP provides
technology-based interactive multimedia training to clients in
telecommunications, financial services and other industries. UP was merged into
Interactive Media upon acquisition. Goodwill totaling $4.6 million was recorded
in connection with this acquisition and is being amortized over 20 years. In
connection with the acquisition of UP, assets acquired and liabilities assumed
were as follows:
<TABLE>
<S> <C>
Assets: $ 2,457,020
Goodwill: $ 4,620,211
Liabilities: $ 1,702,566
</TABLE>
In fiscal 1998, the Company also acquired: certain assets of Command Control,
Inc. ("CCI") related to CCI's command, control, computers, communications and
intelligence ("C(4)I") service business; Interactive Media Solutions, Inc.
("IAM"), a northern California-based interactive multimedia training supplier;
Cambridge Acoustical Associates, Inc. ("CAA") of Medford, Massachusetts, which
specializes in dynamics of submerged structures, acoustic analysis, and passive
and active noise control; and the assets and rights relating to Dalco
Electronics Corporation's surface and electronic warfare equipment overhaul and
repair business of Virginia Beach, Virginia. Total goodwill of $1.9 million was
recorded in connection with these acquisitions and is being amortized over 20
years.
On July 26, 1996, the Company acquired all of the stock of Vector Research
Company, Inc. (Vector) of Rockville, Maryland for approximately $6.5 million in
cash plus related expenses and assumption of tax liabilities. Vector provides
engineering and technical services to U.S. Navy customers. Goodwill totaling
approximately $3.5 million was recorded in connection with this acquisition and
is being amortized over 20 years. In connection with the acquisition of Vector
Research Company, Inc., assets acquired and liabilities assumed were as follows:
<TABLE>
<S> <C>
Assets: $ 4,472,752
Goodwill: $ 3,480,650
Liabilities: $ 1,541,835
</TABLE>
On July 18, 1997, the company sold its interest in Automation Software,
Incorporated to its joint venture partner, Brown & Sharpe Manufacturing Co.
(NYSE:BNS) of Kingston, Rhode Island for $3.0 million. Net cash proceeds from
the sale were $1.8 million, and as a result of the company's investment of
approximately $1.4 million in the joint venture as of the date of the sale, a
net after-tax gain of $405 thousand was recognized in the second quarter ended
September 30, 1997.
22 Analysis & Technology, Inc. and Subsidiaries
<PAGE> 25
Note 2
Summary of Significant Accounting Policies
The following is a summary of significant accounting policies of the Company:
- - Principles of Consolidation - The consolidated financial statements
include the accounts of A&T and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
- - Cash Equivalents - For financial statement purposes, the Company
considers all investments with original maturities of three months or
less at the time of purchase to be cash equivalents.
- - Fair Value of Financial Instruments - The carrying amounts of the
Company's financial instruments including cash, accounts receivable,
accounts payable, accrued expenses and dividends payable approximate
fair value due to the short term nature of these instruments. The
carrying value of notes and other receivables and long term debt
approximate fair value based on the instruments' interest rate, terms,
maturity date, and collateral, if any, in comparison to the Company's
incremental borrowing rate for similar financial instruments.
- - Depreciation and Amortization - Property, buildings, and equipment are
stated at cost. Depreciation of buildings and equipment is provided
over the estimated useful lives of the respective assets using the
straight-line method. Leasehold improvements are amortized over the
shorter of the lease term or the life of the asset.
- - Long-Lived Assets - Long-lived assets and certain identifiable
intangibles are reviewed for impairment, based upon undiscounted future
cash flows, and appropriate losses are recognized whenever the carrying
amount of an asset may not be recovered in accordance with Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of.
- - Goodwill - Goodwill relating to the Company's acquisitions represents
the excess of cost over the fair value of net assets acquired and is
amortized on a straight-line basis over periods ranging from five to
thirty years. Determination of the straight-line period is dependent on
the nature of the operations acquired. The Company evaluates the
recoverability of goodwill on a periodic basis to assure that changes
in facts and circumstances do not suggest that recoverability has been
impaired. This analysis relies on a number of factors, including
operating results, business plans, budgets, economic projections, and
changes in management's strategic direction or market emphasis. The
test of recoverability for goodwill is a comparison of the unamortized
balance to expected cumulative (undiscounted) operating income of the
acquired business or enterprise over the remaining portion of the
amortization period. If the book value of goodwill exceeds undiscounted
future operating income, the writedown is computed as the excess of the
unamortized balance of the asset over the present value of operating
income discounted at the Company's weighted average cost of capital
over the remaining amortization period.
- - Product Development Costs - Product development costs represent
expenditures for the development of transaction processing systems and
other software products that have been capitalized in accordance with
Statement of Financial Accounting Standards No. 86, Accounting for the
Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed.
Amortization is computed on an individual product basis and is the
greater of (a) the ratio of current gross revenues for a product to the
total of current and anticipated future gross revenues for that product
or (b) the amount computed using the straight-line method over the
remaining economic useful life of the product. The Company is currently
using economic lives ranging from two to five years for all capitalized
product development costs. Amortization of product development costs
begins when the software product is available for general release to
customers.
- - Accounting for Investment in Joint Venture - The Company's 50%
investment in its former joint venture, Automation Software,
Incorporated, was accounted for using the equity method of accounting.
- - Accounting for Stock-Based Compensation - The Company applies APB
Opinion 25 and related Interpretations in accounting for its stock
option plans. In October 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation. Statement 123 addresses the accounting
for the cost of stock-based compensation, such as stock options, and
permits either expensing the cost of stock-based compensation over the
vesting period or disclosing in the financial statement footnotes what
this expense would have been. This cost would be measured at the grant
date based upon estimated fair values, using option pricing models. The
Company adopted the disclosure alternative of Statement 123 as of March
31, 1997.
- - Revenue Recognition - The revenue from contract services is earned
under cost-reimbursement, time-and-material, and fixed-price contracts.
Revenues under such contracts, including applicable fees and estimated
profits, are recorded as costs are incurred on the percentage of
completion basis. If estimates indicate a probable ultimate loss on a
contract, provision is made immediately for the entire amount of the
estimated future loss. Profit and losses accrued include the cumulative
effect of changes in prior periods' price and cost estimates.
Analysis & Technology, Inc. and Subsidiaries 23
<PAGE> 26
- - Earnings Per Share - In the third quarter of fiscal 1998, the Company
adopted the provisions of Statement of Financial Accounting Standards
No. 128, Earnings Per Share, for calculating earnings per share (EPS).
Statement 128 requires the disclosure of basic EPS, which is computed
by dividing income available to common shareholders by the weighted
average number of common shares outstanding at the end of the period.
Diluted EPS, which gives effect to all dilutive potential common shares
outstanding, is also required. The Company has restated all EPS data
for prior periods as required by Statement 128.
The following table reconciles net earnings to net earnings available
to common shareholders and basic weighted average number of shares to
diluted weighted average shares outstanding for the years ending March
31, 1998, 1997, and 1996. Net earnings attributable to subsidiary stock
options represents the allocation of Integrated Performance Decisions
(IPD) earnings to holders of potentially dilutive options on IPD stock
held by IPD employees (see footnote 8).
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
Weighted average shares outstanding 3,530,006 3,499,742 3,623,955
Net effect of dilutive stock options based on the treasury
stock method using the average market price 319,236 109,468 116,672
----------- ----------- ----------
Total 3,849,242 3,609,210 3,740,627
=========== =========== ==========
Net earnings $ 4,191,564 $ 3,375,536 $2,077,621
Net effect of earnings attributable to subsidiary stock options (85,050) (33,407) --
Net earnings available to common shareholders $ 4,106,514 $ 3,342,129 $2,077,621
=========== =========== ==========
</TABLE>
Options to purchase 750 and 1,000 shares of common stock at $16.08 and
$18.88 per share, respectively, were outstanding during fiscal 1998 but
were not included in the computation of diluted EPS because the
options' exercise price was greater than the average market price of
common shares.
- - Deferred Compensation Plan - The Company maintains a deferred
compensation plan for certain officers, directors, and salaried
employees. The plan is funded primarily through employee pre-tax
contributions. The Company has recorded the assets and liabilities for
the deferred compensation plan at the lower of cost or market in the
consolidated balance sheets. The participants in the plan bear the risk
of market value fluctuations of the underlying assets.
- - Shareholders' Equity - On December 19, 1997, the Company's Board of
Directors authorized a three-for-two stock split in the form of a stock
dividend distributed on January 29, 1998 to shareholders of record as
of the close of business on January 2, 1998. All references in the
financial statements to average number of shares outstanding and
related prices, per share amounts, and stock option plan data have been
restated to reflect the stock split.
- - Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual
results could differ from reported results using those estimates.
- - Other Accounting Pronouncements - Statement of Financial Accounting
Standards SFAS No. 131, Disclosures about Segments of an Enterprise and
Related Information, establishes standards for the way that public
business enterprises report information and operating segments in
annual financial statements and requires reporting of selected
information in interim financial reports. This statement is effective
for fiscal years beginning after December 15, 1997. The required
disclosures for SFAS No. 131 will be included in the Company's
quarterly report on Form 10-Q for the first quarter of fiscal 1999.
24 Analysis & Technology, Inc. and Subsidiaries
<PAGE> 27
Note 3
Discontinued Operations
On October 31, 1995, the Company sold the commercial business of its Groton,
Connecticut-based subsidiary, General Systems Solutions, Inc. (GSS), to GE
Capital Corporation for $9.25 million in cash. Of the $9.25 million purchase
price, approximately $8.0 million was paid to A&T. The balance was paid to
minority shareholders. GSS provided On-Line Registration Systems (OLRS) and
related services to vehicle lease and rental companies, as well as car dealers.
OLRS provided the capability to register vehicles from personal computers
networked to GSS. GSS's Navy business was transferred to the Company prior to
the sale and its commercial business was reclassified retroactively as a
discontinued operation. The Company accrued the pretax loss of $2.7 million
associated with the sale ($1,316,030 after tax or $0.36 basic loss per common
share, or $0.35 diluted loss per common and common equivalent share) during the
second quarter of fiscal 1996. During fiscal 1997, the Company reimbursed GE
Capital $400,000 for a portion of uncollectible receivables and for other items
that could not be finalized until after the closing.
Note 4
Contract Receivables
Contract receivables are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
U.S. Government Customers:
Amounts due currently - prime contractor $10,439,279 $11,722,320
Amounts due currently - subcontractor 7,719,819 5,662,195
Retainage 740,043 744,617
----------- -----------
18,899,141 18,129,132
----------- -----------
Commercial customers:
Amounts due currently 4,950,970 3,439,635
----------- -----------
Unbilled contracts in process:
Fixed-price contracts in progress, net of progress billings 642,060 285,863
Revenues recorded on work performed pursuant to customer
authorization but prior to execution of contractual
documents or modifications 1,144,870 2,838,485
----------- -----------
1,786,930 3,124,348
----------- -----------
$25,637,041 $24,693,115
=========== ===========
</TABLE>
The Government retains a portion of the fee earned by the Company (retainage)
until contract completion and final audit by the Defense Contract Audit Agency
(DCAA). It is estimated that approximately $544,809 of retainage at March 31,
1998 will be collected within one year; the remainder will be collected in later
years as DCAA completes its audits.
All unbilled contract receivables, net of retainage, are expected to be billed
and collected within one year.
Note 5
Non-Current Assets
A summary of property, buildings, and equipment follows:
<TABLE>
<CAPTION>
Useful Life 1998 1997
----------- ---- ----
<S> <C> <C> <C>
Land -- $ 376,839 $ 376,839
Buildings 31 years 11,554,841 11,451,313
Equipment 3 - 12 years 21,780,638 19,608,483
Leasehold improvements 1 - 5 years 2,510,210 1,682,494
------------ ------------
36,222,528 33,119,129
Less accumulated depreciation and amortization (21,336,456) (19,155,156)
------------ ------------
$ 14,886,072 $ 13,963,973
============ ============
</TABLE>
Analysis & Technology, Inc. and Subsidiaries 25
<PAGE> 28
Goodwill as of March 31, 1998 and 1997 was $15,401,697 and $9,463,588, net of
accumulated amortization of $3,290,478 and $2,566,475, respectively. The amount
of goodwill added in fiscal 1998 and 1997 was $6,662,112 and $3,477,991,
respectively. Amortization expense was $724,003 in fiscal 1998, $562,257 in
fiscal 1997 and $452,840 in fiscal 1996.
Product development costs at March 31, 1998 and 1997 were $301,993 and $563,702,
net of accumulated amortization of $461,819 and $299,372, respectively. The
amount of product development costs capitalized was $130,668 in fiscal 1998, and
$315,866 in fiscal 1997. Amortization expense was $162,447 in fiscal 1998,
$113,908 in fiscal 1997, and $116,142 in fiscal 1996. In addition, previously
capitalized costs totaling $280,555 were written off in fiscal 1998.
Note 6
Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Mortgage payable to Fleet Bank bearing interest at 7.97%, due in monthly
installments of principal of $11,500 plus associated interest through
September 1, 2001, secured by certain land and buildings with a
depreciated cost of $2,736,387 $ 491,865 $ 629,870
Mortgage payable to Fleet Bank bearing interest at 8.29%, due in monthly
installments of principal and interest of $20,048 through January 1, 2007,
secured by certain land and buildings with a depreciated cost of $2,755,290 1,597,058 1,698,578
Mortgage payable to Chelsea Groton Bank bearing interest at 9.25%, due in
monthly installments of principal and interest of $4,477 through March 2004,
secured by certain land and buildings 233,588 264,149
Small Business Administration loan bearing interest at 8.5%, due in monthly
installments of principal and interest of $4,923 through May 2001 167,218 210,087
---------- ----------
Total long-term debt 2,489,729 2,802,684
Less current installments of long-term debt 328,646 313,032
---------- ----------
Total long-term debt, excluding current installments $2,161,083 $2,489,652
========== ==========
</TABLE>
The Company has a $20,000,000 revolving credit and term loan agreement that
expires on October 31, 1999. Amounts drawn against the line of credit may be
converted into a term loan at the Company's discretion at any time prior to the
expiration of the loan agreement. If converted, the term loan would be payable
in 20 substantially equal quarterly installments. The alternate rates of
interest for the term loan from which the Company can choose are the bank's base
rate, the bank's certificate of deposit rate plus 1%, or LIBOR plus 3/4%. There
is a commitment fee of 1/2% per annum on the average daily balance of the unused
portion of the first $5,000,000 of the commitment and 1/4% per annum on the
remaining unused portion of the commitment, payable quarterly.
The revolving credit and term loan agreement places certain restrictions on
encumbering the Company's assets, incurring additional debt, and disposing of
any significant assets. It also requires that the Company maintain at least
$10,000,000 in working capital (excluding deferred income taxes), tangible net
worth of at least $25,000,000, a debt-to-net-worth ratio of less than 2.5 to
1.0, an interest coverage ratio of not less than two times interest paid or
accrued, and a debt service ratio of not less than 1.2 to 1.0. As of March 31,
1998, the Company was in compliance with these covenants.
Under current agreements, principal payments due on long-term debt during each
of the five fiscal years subsequent to March 31, 1998 are as follows: $328,646
in 1999, $345,338 in 2000, $364,157 in 2001, $278,580 in 2002, and $202,862 in
2003.
The Company paid $296,209, $397,417, and $640,660 in interest on all debts in
fiscal 1998, 1997, and 1996, respectively.
26 Analysis & Technology, Inc. and Subsidiaries
<PAGE> 29
Note 7 Income Taxes
Total income tax expense for the years ended March 31, 1998, 1997, and 1996
consisted of the following:
<TABLE>
<CAPTION>
Current Deferred Total
----------- ----------- -----------
1998:
<S> <C> <C> <C>
Federal $ 3,792,827 $ (510,774) $ 3,282,053
State 896,636 (34,925) 861,711
Foreign -- 8,483 8,483
----------- ----------- -----------
Total continuing operations $ 4,689,463 $ (537,216) $ 4,152,247
=========== =========== ===========
1997:
Federal $ 2,583,180 $ (507,257) $ 2,075,923
State 598,487 (157,198) 441,289
Foreign -- (80,230) (80,230)
----------- ----------- -----------
Total continuing operations $ 3,181,667 $ (744,685) $ 2,436,982
=========== =========== ===========
1996:
Federal $ 1,195,813 $ 35,232 $ 1,231,045
State 586,361 (1,864) 584,497
----------- ----------- -----------
Continuing operations 1,782,174 33,368 1,815,542
Discontinued operations 2,104,716 (3,632,767) (1,528,051)
----------- ----------- -----------
Total $ 3,886,890 $(3,599,399) $ 287,491
=========== =========== ===========
</TABLE>
Income tax expense from continuing operations differed from the amount computed
by applying the U.S. federal income tax rate of 34% to earnings before income
taxes as a result of the following:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Computed expected tax expense from continuing operations $ 2,836,896 $ 1,976,256 $ 1,837,333
Increase (decrease) in income taxes resulting from:
Amortization of goodwill 178,153 139,220 153,966
Gain on sale of joint venture 478,896 -- --
Equity in joint venture -- (30,751) (117,586)
State income taxes (net of valuation allowance and
federal income tax benefit) 568,729 291,251 385,768
Research and development credits -- -- (400,000)
Change in valuation allowance, exclusive of state tax -- (118,500) (29,830)
Other (net) 89,573 179,506 (14,109)
----------- ----------- -----------
$ 4,152,247 $ 2,436,982 $ 1,815,542
=========== =========== ===========
</TABLE>
During the second quarter of fiscal 1996, the Company analyzed research
expenditures incurred in prior years by the Company and its subsidiaries. As a
result of this analysis, the Company determined it was entitled to certain
federal and state research and development tax credits for which it has filed
refund claims.
Analysis & Technology, Inc. and Subsidiaries 27
<PAGE> 30
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities as of March 31, 1998 and
1997 are presented below:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Uncollected receivables that are not yet deductible for tax purposes $ 520,363 $ 80,632
Compensated absences, principally due to accrual for financial reporting purposes 961,786 1,014,609
Deferred compensation 1,267,066 1,092,088
Net operating loss carryforwards 203,345 236,275
----------- -----------
Total gross deferred tax assets 2,952,560 2,423,604
Less valuation allowance 80,355 61,437
----------- -----------
Net deferred tax assets 2,872,205 2,362,167
----------- -----------
Deferred tax liabilities:
Tax depreciation in excess of financial statement depreciation (800,325) (855,738)
Capitalized software product development costs (101,085) (194,932)
Unbilled contract revenue (2,027,937) (1,802,907)
Other (271,616) (53,764)
----------- -----------
Total gross deferred tax liabilities (3,200,963) (2,907,341)
----------- -----------
Net deferred tax liability $ (328,758) $ (545,174)
=========== ===========
</TABLE>
At March 31, 1998, the Company had federal and state net operating loss
carryforwards of approximately $230,000 and $1,370,000, respectively. Such
carryforwards have various expiration dates and begin to expire in the year
ended March 31, 1999. For financial purposes, a valuation allowance of $80,355
and $61,437 has been recognized to offset the deferred tax asset related to the
portion of the state net operating losses which the Company believes will more
likely than not expire unutilized.
Management has evaluated the remaining temporary differences and concluded that
it is more likely than not that the Company will have sufficient taxable income,
of an appropriate character within the carryback and carryforward period
permitted by current tax law, to allow for the utilization of the deductible
amounts generating the deferred tax assets and, therefore, no valuation
allowance is required as of March 31, 1998 and 1997.
The Company made federal and state income tax payments of $3,568,245,
$2,707,724, and $4,357,117, during fiscal 1998, 1997, and 1996, respectively.
Note 8 Stock Options
A&T has granted common stock options to certain key employees under its stock
option plans. All plans provide that the fair value upon which option exercise
prices are based shall be the average of the high and low sale prices of the
Company's common stock as reported on the NASDAQ National Market System on the
day the option is granted. Options awarded vest at a rate of 20% annually,
commencing on the date of award.
The transactions under the Company's stock option plan as of March 31, 1998,
1997, and 1996 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------- ----------------------- --------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------- -------------- ------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 907,017 $ 8.39 898,820 $8.22 861,311 $7.79
Granted 299,875 $13.31 78,600 $9.38 219,615 $9.40
Exercised (317,076) $ 7.48 (51,269) $6.63 (105,306) $6.71
Canceled or expired (20,737) $ 9.66 (19,134) $9.51 (76,800) $8.87
------- ------- ---------
Outstanding at end of year 869,079 $10.39 907,017 $8.39 898,820 $8.22
======= ======= =========
Exercisable at end of year 476,953 649,008 569,393
======= ======= =========
Shares reserved at end of year 975,869 952,370 1,004,682
======= ======= =========
</TABLE>
28 Analysis & Technology, Inc. and Subsidiaries
<PAGE> 31
The following table summarizes information about stock options outstanding at
March 31, 1998:
<TABLE>
<CAPTION>
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
--------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 6.50 - $ 9.46 376,749 3.27 $ 8.36 279,633 $ 8.03
$ 9.67 - $10.50 197,780 3.98 $ 9.86 141,470 $ 9.87
$ 12.96 - $18.875 294,550 6.34 $13.32 55,850 $13.33
------- -------
$ 6.50 - $18.875 869,079 4.47 $10.39 476,953 $ 9.20
======= =======
</TABLE>
Had compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant date for awards under those
plans consistent with the requirements of Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation, the Company's net
income and earnings per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C> <C>
Net earnings As reported $ 4,191,564 $ 3,375,536 $ 3,588,381
from continuing operations Pro forma $ 3,721,101 $ 3,151,392 $ 3,364,229
Basic earnings per share As reported $ 1.19 $ 0.96 $ 0.99
from continuing operations Pro forma $ 1.05 $ 0.90 $ 0.93
Diluted earnings per share As reported $ 1.07 $ 0.93 $ 0.96
from continuing operations Pro forma $ 0.94 $ 0.86 $ 0.90
</TABLE>
The fair value of each stock option grant has been estimated on the date of
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rate 6.23% 6.26% 5.29%
Expected life (years) 5.7 5.1 5.1
Expected volatility 34.52% 32.78% 30.36%
Expected dividend yield 1.0% 2.0% 2.0%
</TABLE>
The weighted-average fair values of options at the date of grant were $5.29,
$3.19, and $2.80 during 1998, 1997, and 1996, respectively.
In addition, the Company can grant stock options to certain key employees of
Integrated Performance Decisions, Inc. (IPD), a subsidiary of the Company, to
purchase up to 19% of the authorized common stock of IPD. The price of the
options as of the date of award and subsequent valuation is based on a
calculation considering book value per share and an earnings factor.
Approximately 90% of the available options have been granted to date.
Note 9 Employee Benefit Plans
The Company's Savings and Investment Plan is a discretionary contribution plan
as defined in the Internal Revenue Code, Section 401(a)(27). The plan covers
substantially all of the Company's full-time employees. The Company's
contributions are made at the discretion of the Board of Directors for any plan
year. For the plan years ended December 31, 1997, 1996, and 1995, the Company
matched up to 50% of a participant's contribution of up to a maximum of 6% of
the participant's compensation, depending on the business unit to which the
participant was assigned. The Company's matching contributions to this plan were
$1,847,496, $1,767,992, and $1,039,829 for the years ended March 31, 1998, 1997,
and 1996, respectively. The Company's matching contributions to this plan
related to GSS were $37,119 for the year ended March 31, 1996. One of the
investment options available under the Company's Savings and Investment Plan is
the purchase of the Company's stock. The Plan owned 151,191, 126,626, and
109,038 shares of common stock of the Company at March 31, 1998, 1997, and 1996,
respectively.
The A&T Employee Stock Ownership Plan (ESOP) covers substantially all full-time
employees. Contributions to the plan are made at the discretion of the Board of
Directors for any plan year. The Company's contributions to the plan amounted to
$101,600, $112,000, and $100,000 for fiscal 1998, 1997, and 1996, respectively.
The plan owned 532,694, 571,319, and 635,652 shares of common stock of the
Company at March 31, 1998, 1997, and 1996, respectively, and all shares are
allocated to the participants of the ESOP and are included in outstanding shares
of common stock.
Analysis & Technology, Inc. and Subsidiaries 29
<PAGE> 32
The Company's liability to employees for deferred compensation of $3,467,388 and
$3,033,271 as of March 31, 1998 and 1997, respectively, is included in other
long-term liabilities on the accompanying consolidated balance sheets. The
corresponding invested assets are shown as deferred compensation plan
investments.
Note 10 Accrued Expenses
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Accrued vacation $ 4,671,092 $ 4,077,079
Accrued compensation and related taxes 3,987,617 3,168,086
Accrued benefits 1,953,372 1,356,712
Accrued income taxes payable 190,625 81,929
Other 547,997 691,853
------------ -----------
$ 11,350,703 $ 9,375,659
============ ===========
</TABLE>
Note 11 Commitments and Contingencies
The Company occupies certain office facilities and uses certain equipment under
lease agreements with terms that range from two to six years. Many of the leases
have renewal options with similar terms. All of these agreements are accounted
for as operating leases. Minimum lease payments for which the Company is
obligated are as follows (the amounts are net of certain maintenance expenses,
insurance, and taxes):
<TABLE>
<CAPTION>
Years ending March 31:
- ---------------------
<S> <C>
1999 $ 5,561,770
2000 4,334,093
2001 3,399,861
2002 2,108,234
2003 1,320,618
------------
Total minimum lease payments $ 16,724,576
============
</TABLE>
Lease expense amounted to approximately $5,776,000, $5,138,000, and $4,238,000
in fiscal 1998, 1997, and 1996, respectively.
The U.S. Government has the right to audit and make retroactive adjustments
under certain contracts. Audits through March 31, 1996 have been completed. In
the opinion of management, adjustments, if any, resulting from audits for the
years ended March 31, 1997 and 1998 will not have a material effect on the
Company's consolidated financial statements.
In addition, government funding continues to be dependent on congressional
approval of program level funding and on contracting agency approval for the
Company's work. The extent to which backlog will be funded in the future cannot
be determined.
Under the terms of the Design Systems & Services, Inc. purchase agreement
executed in fiscal 1995, the Company is committed to make contingent payments up
to $400,000 to the former owner of the company. Contingent payments are based on
15% of revenues derived from sales of a ship design software product made
between the purchase date and April 30, 1999. The Company made contingent
payments to the former owner totaling $66,682 and $42,727 during fiscal 1998 and
fiscal 1997, respectively.
Under the terms of the UP purchase agreement, if the aggregate net profit of
Interactive Media for the four fiscal quarters ended September 30, 1998 ("the
First Determination Date") is greater than the combined cumulative net profit of
Interactive Media and UP for the four quarters ending September 30, 1997, the
Company is committed to pay $1,070,000 in additional purchase price to the
former owners of UP. In addition, if the gross margin for specifically
identified projects exceeds a specific threshold, the Company is obligated to
pay the former owners $500,000 in additional purchase price as of the First
Determination Date. In the event that the aggregate net profit of Interactive
Media for the eight fiscal quarters ending September 30, 1999 ("the Second
Determination Date") is greater than two times the combined cumulative net
profit of Interactive Media and UP for the four quarters ending September 30,
1997, the Company is obligated to pay to the former owners of UP 8,110 shares of
Interactive Media stock, or cash of $2,250,000, or a combination of stock and
cash which together equal the appraised value of the contingent stock payment at
the Second
30 Analysis & Technology, Inc. and Subsidiaries
<PAGE> 33
Determination Date. However, the former owners of UP may not elect to receive an
aggregate amount of cash in excess of $2,250,000. If at the Second Determination
Date, the net profit of Interactive Media for the eight fiscal quarters ending
September 30, 1999 is equal to or greater than 75%, but less than or equal to
100%, of two times the combined cumulative net profit of Interactive Media and
UP for the four quarters ending September 30, 1997, the Company will be
obligated to pay the former owners of UP 4,055 shares of Interactive Media
stock, or cash of $1,125,000, or a combination of stock and cash which together
equal the appraised value of the contingent stock payment at the determination
date. However, the former owners of UP may not elect to receive an aggregate
amount of cash in excess of $1,125,000.
In fiscal 1997, the Company received $450,000 under the terms of a development
agreement with the Connecticut Department of Economic Development to fund
technology-based training development. Under the terms of the agreement, the
Company is required to pay royalties equal to 3% of gross sales of
technology-based training products initiated in Connecticut. Royalty payments
will be deemed to be paid in full when royalty payments are equal to a return on
investment of 15% and the Company has maintained a Connecticut presence. Under
the terms of the agreement, the Company made royalty payments totaling $75,085
in fiscal 1998 and $94,695 in fiscal 1997.
In fiscal 1995 and 1996, the Company received $200,000 under the terms of a
development agreement with a state-financed corporation, Connecticut
Innovations, Inc. (CII), to assist in funding the development of commercial
imaging processing products and services. Under the terms of the agreement, the
Company is required to remit quarterly royalty payments of up to 5% of the gross
sales of imaging products and services and 25% of the aggregate amount of
one-time license fees received through September 30, 1999. After September 1999,
royalty payments shall be made at the greater of the amount stated above or 2%
of the commercial sales of the Company's Engineering Technology Center Business
Unit, until cumulative royalty payments to CII reach $200,000. Royalty payments
will be deemed to be paid in full if at any time after October 1996, CII has
received a 25% annual compounded rate of return on all funds advanced to the
Company. Under the terms of the agreement, the Company made royalty payments
totaling $1,645 in fiscal 1998 and $16,058 in fiscal 1997.
The Company may from time to time be involved in various claims and legal
actions arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not have a material
adverse effect on the Company's consolidated financial position or results of
operations.
Note 12 Segment Reporting
The Company operates principally in two segments, Engineering and Information
Technologies (Engineering/IT), and technology-based training, which it develops
through its wholly owned subsidiary, Interactive Media Corp. (Interactive
Media). The Engineering/IT segment serves primarily the needs of the Department
of Defense while the Interactive Media segment targets both government and
commercial customers. Total revenue by segment includes both sales to
unaffiliated customers, as reported in the Company's consolidated statement's of
earnings, and intersegment sales.
The following table presents information about the Company's segments for the
year ended March 31, 1998:
<TABLE>
<CAPTION>
Engineering/IT Interactive Media Eliminations Consolidated
-------------- ----------------- ------------ ------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers $ 139,823,861 $ 20,132,433 -- $ 159,956,294
Intersegment sales 1,100,771 45,550 (1,146,321) --
------------- ------------- ------------- -------------
$ 140,924,632 $ 20,177,983 $ (1,146,321) $ 159,956,294
============= ============= ============= =============
Operating earnings $ 6,862,631 $ 1,082,535 -- $ 7,945,166
------------- ------------- ------------- -------------
Interest expense 296,209
Interest income (125,200)
Equity in income of joint venture (16,969)
Gain on sale of joint venture (1,591,483)
Other, net 1,038,798
------------- ------------- ------------- -------------
(398,645)
------------- ------------- ------------- -------------
Earnings from continuing operations
before income taxes $ 8,343,811
Depreciation expense $ 1,943,011 $ 436,901 $ 2,379,912
============= ============= ============= =============
Capital expenditure $ 2,545,451 $ 485,343 $ 3,030,794
============= ============= ============= =============
Amortization expense $ 620,378 $ 103,625 $ 724,003
============= ============= ============= =============
Identifiable assets at March 31, 1998 $ 50,202,241 $ 13,406,973 -- $ 63,609,214
============= ============= ============= =============
</TABLE>
Analysis & Technology, Inc. and Subsidiaries 31
<PAGE> 34
Note 13 Quarterly Results of Operations (Unaudited)
The following summarizes quarterly results of operations for the years ended
March 31, 1998 and 1997:
Dollars in thousands except per share amounts
<TABLE>
<CAPTION>
Quarter ended: June 30 September 30 December 31 March 31 Total
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Fiscal 1998
Revenues from continuing operations $ 37,450 $ 38,157 $ 40,773 $ 43,576 $159,956
Operating earnings from continuing
operations 1,843 1,448 2,307 2,347 7,945
Net earnings from continuing operations 916 1,084 1,071 1,121 4,192
Earnings per share from continuing
operations:
Basic $ 0.27 $ 0.31 $ 0.30 $ 0.31 $1.19
Diluted $ 0.25 $ 0.28 $ 0.27 $ 0.27 $1.07
Fiscal 1997
Revenues from continuing operations $ 32,488 $ 35,507 $ 35,653 $ 38,899 $142,547
Operating earnings from continuing
operations 1,497 1,798 1,646 1,829 6,770
Net earnings from continuing operations 793 850 868 865 3,376
Earnings per share from continuing
operations:
Basic $ 0.23 $ 0.24 $ 0.25 $ 0.25 $0.96
Diluted $ 0.22 $ 0.23 $ 0.24 $ 0.24 $0.93
</TABLE>
32 Analysis & Technology, Inc. and Subsidiaries
<PAGE> 35
Independent Auditors' Report
The Board of Directors and Shareholders
Analysis & Technology, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Analysis &
Technology, Inc. and Subsidiaries as of March 31, 1998 and 1997, and the related
consolidated statements of earnings, shareholders' equity, and cash flows for
each of the years in the three-year period ended March 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Analysis &
Technology, Inc. and Subsidiaries as of March 31, 1998 and 1997 and the results
of their operations and their cash flows for each of the years in the three-year
period ended March 31, 1998 in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Providence, Rhode Island
May 1, 1998
Analysis & Technology, Inc. and Subsidiaries 33
<PAGE> 36
DIRECTORS AND OFFICERS
BOARD OF DIRECTORS
GARY P. BENNETT
Chairman, President, and Chief Executive Officer
Analysis & Technology, Inc.
LARRY M. FOX
Vice Chairman,
Analysis & Technology, Inc.
Director of Hardware Operations
Fisher-Rosemount Systems
JAMES B. FOX
Retired President,
Mobil Oil Credit Corporation
NELDA S. NARDONE
Retired Secretary,
Analysis & Technology, Inc.
THURMAN F. NAYLOR
Retired Chairman and
Chief Executive Officer, Standard Thomson Corporation
DAVID M. NOLF
Executive Vice President, Analysis & Technology, Inc.
DENNIS G. PUNCHES
Director
Outsourcing Solutions, Inc.
OFFICERS
GARY P. BENNETT
Chairman, President, and Chief Executive Officer
DAVID M. NOLF
Executive Vice President, Chief Financial and Administrative Officer, Secretary
JAY W. RYERSON
Executive Vice President, Chief Operating Officer
ROBERT M. GORMAN
Executive Vice President
JAMES R. LAVOIE
Executive Vice President
JOSEPH M. MARINO
Executive Vice President
RICHARD P. MITCHELL
Executive Vice President
STEPHEN E. JOHNSTON
Senior Vice President, Human Resources
GERALD SNYDER
Senior Vice President, Planning
SUSAN C. VARNADOE
Senior Vice President
V. LEHMAN WOODS
Senior Vice President, Contracts
ROGER J. BAGBEY
Vice President
STEPHEN K. BRADY
Vice President
RICHARD C. CHAPMAN
Vice President
DOUGLAS L. CLARK
Vice President
MARK A. CLIFTON
Vice President
KATHRYN M. CONLON
Vice President
DANIEL R. CONWAY
Vice President
ANTHONY L. D'AMBROSIO
Vice President
RUSSELL J. DESIMONE
Vice President
JOHANN D. DRETCHEN
Vice President
JAMES R. FITZGERALD
Vice President
LARRY FREEMAN
Vice President
DAVID C. GHEN
Vice President
VINCENT D. GODINO
Vice President
DANIEL K. HACKENBERG
Vice President
DAVID R. HORNE
Vice President
TOBIN R. MCNATT
Vice President
MARK S. RIDDLE
Vice President
ROBERT F. URSO
Vice President
FRED C. ZEILE III
Vice President
SUBSIDIARY OFFICERS
Interactive Media Corp.
SUSAN C. VARNADOE
President
JOHN A. ROBIC
Senior Vice President
LINDA M. EDWARDS
Vice President,
Chief Financial Officer
DAVID M. NOLF
Secretary
ANN E. BARRON
Vice President
GARY M. BENEDETTI
Vice President
JOHN G. DRUGO
Vice President
DAVID R. FALL III
Vice President
JOHN T. MCCOY
Vice President
CHRISTINA MEINIG
Vice President
DUDLEY B. MOLINA
Vice President
M. A. ROBERT WEATHERWAX
Vice President
Integrated Performance Decisions, Inc. (IPD)
JAMES R. LAVOIE
President
DAVID M. NOLF
Secretary
ELEANOR S. HOLMES
Vice President
DENNIS J. KELLY, JR.
Vice President
RONALD L. PATTON
Vice President
Analysis & Technology Australia PTY Limited
PAUL A. FOTHERGILL
Managing Director, Secretary
A&T International Corporation (ATIC)
GARY P. BENNETT
Chairman, President,
and Chief Executive Officer
V. LEHMAN WOODS
Executive Vice President, Chief Financial Officer
DAVID M. NOLF
Secretary
WILLIAM A. REED
Vice President
34 Analysis & Technology, Inc. and Subsidiaries
<PAGE> 37
Company Information
TRANSFER AGENT AND REGISTRAR
ChaseMellon Shareholder Services, LLC
85 Challenger Road
Ridgefield Park, New Jersey 07660
1-800-288-9541
FORM 10-K
Copies of the Company's fiscal 1998 Annual Report on Form 10-K, as filed with
the Securities and Exchange Commission, may be obtained at no charge by writing
to:
Elaine Grimsell Beckwith
Investor Relations Manager
Analysis & Technology, Inc.
P.O. Box 220, Route 2
North Stonington, Connecticut 06359-0220
E-mail address: [email protected]
AUDITORS
KPMG Peat Marwick LLP, Providence, Rhode Island
COUNSEL
Cummings & Lockwood, Hartford, Connecticut
ANNUAL MEETING
Analysis & Technology, Inc.'s annual meeting of shareholders will be held on
Tuesday, August 11, 1998, 10:00 a.m. at The Mystic Hilton, 20 Coogan Boulevard,
Mystic, Connecticut.
OFFICE LOCATIONS
ANALYSIS & TECHNOLOGY, INC.
CORPORATE OFFICE
P.O. Box 220, Route 2
North Stonington, CT
06359-0220
(860) 599-3910
CALIFORNIA
Monterey
San Diego
San Francisco
COLORADO
Denver
CONNECTICUT
Mystic
New London
North Stonington
FLORIDA
Orlando
Panama City Beach
Tampa
GEORGIA
Atlanta
Roswell
IDAHO
Bayview
MARYLAND
Annapolis
Annapolis Junction
Arnold
Patuxent River
Rockville
Stevensville
MISSISSIPPI
Bay St. Louis
NEW JERSEY
Mt. Laurel
OKLAHOMA
Oklahoma City
PENNSYLVANIA
Pittsburgh
RHODE Island
Newport
SOUTH Carolina
North Charleston
VIRGINIA
Arlington
Chesapeake
McLean
WASHINGTON, D.C.
AUSTRALIA
Fyshwick
CANADA
Victoria
FORWARD-LOOKING STATEMENTS
Information in this fiscal year 1998 Annual Report to Shareholders may include
statements that are forward-looking as defined in the Private Securities
Litigation Reform Act of 1995. These statements involve risks and uncertainties
that could cause actual results to differ materially from those indicated in the
forward-looking statements. Statements relating to the Company's or management's
intentions, hopes, beliefs, expectations, or predictions of the future are
forward-looking statements. Additional information and discussion concerning
factors that could cause actual results to differ materially from those
indicated in forward-looking statements is contained in the "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
section of this Annual Report and in the Company's Form 10-K Annual Report.
Analysis & Technology, Inc. is an Affirmative Action/Equal Opportunity Employer.
Design: Cole Design Group Major photography: Sean Kernan Printing: Thames
Printing
<PAGE> 38
http://www.aati.com
Analysis & Technology
P.O. Box 220
Route 2
North Stonington, CT 06359-0220
(860) 599-3910
<PAGE> 1
Exhibit 21
SUBSIDIARIES OF ANALYSIS & TECHNOLOGY, INC.
<TABLE>
<CAPTION>
NAMES UNDER WHICH JURISDICTION OF
NAME DOING BUSINESS INCORPORATION
- ---- ----------------- ---------------
<S> <C> <C>
Analysis & Technology
Australia Pty Limited ---- Australia
Analysis & Technology
International Corporation ---- Delaware
Integrated Performance Decisions, Inc. ---- Delaware
Interactive Media Corp. ---- Delaware
Numerical Decisions Group, Inc. ---- Canada
</TABLE>
<PAGE> 1
Exhibit 23
Independent Auditors' Report
The Board of Directors and Shareholders
Analysis and Technology, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Analysis &
Technology, Inc. and Subsidiaries as of March 31, 1998 and 1997, and the related
consolidated statements of earnings, shareholders' equity, and cash flows for
each of the years in the three-year period ended March 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Analysis &
Technology, Inc. and Subsidiaries as of March 31, 1998 and 1997 and the results
of their operations and their cash flows for each of the years in the three-year
period ended March 31, 1998 in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Providence, Rhode Island
May 1, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000310876
<NAME> ANALYSIS & TECHNOLOGY
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 954
<SECURITIES> 0
<RECEIVABLES> 25,637
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 28,088
<PP&E> 36,223
<DEPRECIATION> 21,337
<TOTAL-ASSETS> 63,609
<CURRENT-LIABILITIES> 13,633
<BONDS> 0
0
0
<COMMON> 301
<OTHER-SE> 44,046
<TOTAL-LIABILITY-AND-EQUITY> 63,609
<SALES> 0
<TOTAL-REVENUES> 159,956
<CGS> 0
<TOTAL-COSTS> 152,011
<OTHER-EXPENSES> (570)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 171
<INCOME-PRETAX> 8,344
<INCOME-TAX> 4,152
<INCOME-CONTINUING> 4,192
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,192
<EPS-PRIMARY> 1.19
<EPS-DILUTED> 1.07
</TABLE>
